UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-35368
British Virgin Islands
(State or other jurisdiction of incorporation or organization)
N/A
(I.R.S. Employer Identification No.)
33 Kingsway
London, United Kingdom
WC2B 6UF
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: 44 207 632 8600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Ordinary Shares, no par value
Trading Symbol(s)
CPRI
Name of Each Exchange on which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes
Yes
No
No
Yes
No
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth
company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
The aggregate market value of the registrant’s voting and non-voting ordinary shares held by non-affiliates of the registrant was $9,857,994,898 as of
September 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter based on the closing price of the ordinary
shares on the New York Stock Exchange.
As of May 22, 2019, Capri Holdings Limited had 150,939,251 ordinary shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant’s definitive Proxy
Statement, which will be filed in June 2019, for the 2019 Annual Meeting of the Shareholders.
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Business
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6
Item 7
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11
Item 12
Item 13
Item 14
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Item 15
Exhibits and Financial Statement Schedules
PART IV
2
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including documents incorporated herein by reference, contains statements which are,
or may be deemed to be, “forward-looking statements.” Forward-looking statements are prospective in nature and are not based
on historical facts, but rather on current expectations and projections of the management of Capri Holdings Limited (the “Company”)
about future events. All statements other than statements of historical facts included in this Annual Report on Form 10-K, including
documents incorporated herein by reference, may be forward-looking statements. Without limitation, any statements preceded or
followed by or that include the words “targets”, “plans”, “believes”, “expects”, “aims”, “intends”, “will”, “should”, “could”,
“would”, “may”, “anticipates”, “estimates”, “synergy”, “cost-saving”, “projects”, “goal”, “strategy”, “budget”, “forecast” or
“might” or, words or terms of similar substance or the negative thereof, are forward-looking statements. Forward-looking statements
include statements relating to future capital expenditures, expenses, revenues, earnings, economic performance, indebtedness,
financial condition, share buybacks, dividend policy, losses and future prospects of the Company, business and management
strategies and the expansion and growth of the Company’s operations, and benefits from any acquisition. These forward-looking
statements are not guarantees of future financial performance. Such forward-looking statements involve known and unknown
risks and uncertainties that could significantly affect expected results and are based on certain key assumptions, which could cause
actual results to differ materially from those projected or implied in any forward-looking statements. These risks, uncertainties
and other factors include the Company’s ability to integrate successfully and to achieve anticipated benefits of any
acquisition; successful execution of our strategic initiatives; privacy breaches and other cybersecurity risks, tariffs and changes
to international trade agreements; the risk of disruptions to the Company’s businesses; the negative effects of events on the market
price of the Company’s ordinary shares and its operating results; significant transaction costs; unknown liabilities; the risk of
litigation and/or regulatory actions related to the Company’s businesses; fluctuations in demand for the Company’s products;
levels of indebtedness (including the indebtedness incurred in connection with acquisitions); future availability of credit; the timing
and scope of future share buybacks, which may be made in open market or privately negotiated transactions, and are subject to
market conditions, applicable legal requirements, trading restrictions under the Company’s insider trading policy and other relevant
factors, and which share repurchases may be suspended or discontinued at any time, the level of other investing activities and uses
of cash; changes in consumer traffic and retail trends; loss of market share and industry competition; fluctuations in the capital
markets; fluctuations in interest and exchange rates; the occurrence of unforeseen disasters or catastrophes; political or economic
instability in principal markets; adverse outcomes in litigation; and general, local and global economic, political, business and
market conditions, as well as those risks, as they may be amended from time to time, which are set forth in the Company’s filings
with the U.S. Securities and Exchange Commission (the “SEC”), including in this Annual Report on Form 10-K, particularly under
“Item 1A. Risk Factors” and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The Company disclaims any obligation to update or revise any forward-looking statements contained herein other than in accordance
with legal and regulatory obligations.
Electronic Access to Company Reports
Our investor website can be accessed at www.capriholdings.com. Our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K filed with or furnished to the SEC pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended, are available free of charge on our website under the caption “Financials” and
then “SEC Filings” promptly after we electronically file such materials with, or furnish such materials to, the SEC. No information
contained on our website is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-
K.(cid:3)Information relating to corporate governance at our Company, including our Corporate Governance Guidelines, our Code of(cid:3)
Business Conduct and Ethics for all directors, officers, and employees, and information concerning our directors, Committees of(cid:3)
the Board, including Committee charters, and transactions in Company securities by directors and executive officers, is available(cid:3)
at our website under the captions “Corporate Governance” and “Financials” and then “SEC Filings.” Paper copies of these filings(cid:3)
and corporate governance documents are available to shareholders free of charge by written request to Investor Relations, Capri(cid:3)
Holdings Limited, 33 Kingsway, London, United Kingdom, WC2B 6UF. Documents filed with the SEC are also available on the(cid:3)
SEC’s website at www.sec.gov.
3
PART I
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “Capri”, “we”, “us”, “our”, “the
Company”, “our Company” and “our business” refer to Capri Holdings Limited and its consolidated subsidiaries. References
to our stores, retail stores and retail segment include all of our full-price retail stores (including concessions), our e-commerce
websites and outlet stores, and the term “Fiscal,” with respect to any year, refers to the 52-week period ending on the Saturday
closest to March 31 of such year, except for “Fiscal 2016,” which refers to the 53-week period ending April 2, 2016. Some
differences in the numbers in the tables and text throughout this annual report may exist due to rounding. All comparable store
sales are presented on a 52-week basis.
Item 1. Business
Our Company
Capri Holdings Limited (“Capri”) is a global fashion luxury group, consisting of iconic brands that are industry leaders in
design, style and craftsmanship. Our brands cover the full spectrum of fashion luxury categories including women’s and men’s
accessories, footwear and ready-to-wear, as well as wearable technology, watches, jewelry, eyewear and a full line of fragrance
products. Our goal is to continue to extend the global reach of our brands while ensuring that they maintain their independence
and exclusive DNA.
Our Brands
Versace
The Versace brand has long been recognized as one of the world’s leading international fashion design houses and is
synonymous with Italian glamour and style. Founded over 40 years ago in Milan, Italy, Versace is known for its iconic and
unmistakable style and unparalleled craftsmanship. Over the past several decades, the House of Versace has grown globally from
its roots in haute couture, expanding into the design, manufacturing, distribution and retailing of ready-to-wear, accessories,
footwear and home furnishings businesses. Versace distributes its products through a worldwide distribution network which includes
boutiques in some of the world’s most glamorous cities. In addition, certain categories, such as jeans, fragrances, watches and
eyewear are produced under licensing agreements.
Jimmy Choo
The Jimmy Choo brand, founded over 20 years ago, enjoys a leading position in the luxury footwear market and an expanding
presence in the luxury accessories space. Since its inception in 1996, Jimmy Choo has offered a distinctive, glamorous and fashion-
forward product range, enabling it to develop into a leading global luxury accessories brand, whose core product offering of
women’s luxury shoes is complemented by accessories, including handbags, small leather goods, scarves and belts, as well as a
men’s luxury shoes and accessory business. In addition, certain categories, such as fragrances and eyewear are produced under
licensing agreements.
Michael Kors
The Michael Kors brand was launched over 35 years ago by Michael Kors, whose vision has taken it from its beginnings
as an American luxury sportswear house to a global accessories, footwear and apparel company with a presence in over 100
countries through company-operated retail stores and e-commerce sites, leading department stores, specialty stores and select
licensing partners. Michael Kors offers three primary collections: the Michael Kors Collection luxury line, the MICHAEL Michael
Kors accessible luxury line and the Michael Kors Mens line. The Michael Kors Collection establishes the aesthetic authority of
the entire brand and is carried in many of our Michael Kors retail stores, our Michael Kors e-commerce sites, as well as in the
finest luxury department stores in the world. Our accessible luxury line MICHAEL Michael Kors has a strong focus on accessories,
in addition to offering footwear and apparel and is carried in all of our Michael Kors lifestyle stores, as well as leading department
stores throughout the world. We also continue to develop our Michael Kors Mens business in recognition of the significant
opportunity afforded by our Michael Kors brand’s established fashion authority.
4
Our Segments
Prior to the fourth quarter of Fiscal 2019, we organized our business into four reportable segments: MK Retail, MK Wholesale,
MK Licensing and Jimmy Choo. As a result of our acquisition of Versace, effective beginning in the fourth quarter of Fiscal 2019,
we realigned our reportable segments according to the new structure of our business. As a result, we now operate in three reportable
segments, which are as follows:
•
•
Versace — accounted for approximately 3% of our total revenue in Fiscal 2019 (from the date of acquisition on December
31, 2018 through February 28, 2019, due to a one-month reporting lag) and includes worldwide sales of Versace products
through 188 retail stores (including concessions) and e-commerce sites, through 1,028 wholesale doors (including multi-
brand stores and non-core business lines that we are exiting), as well as through product and geographic licensing
arrangements.
Jimmy Choo — accounted for approximately 11% of our total revenue in Fiscal 2019 and includes worldwide sales of
Jimmy Choo products through 208 retail stores (including concessions) and e-commerce sites, through 596 wholesale
doors, as well as through product and geographic licensing arrangements.
• Michael Kors — accounted for approximately 86% of our total revenue in Fiscal 2019 and includes worldwide sales of
Michael Kors products through 853 retail stores (including concessions) and e-commerce sites, through 3,202 wholesale
doors, as well as through product and geographic licensing arrangements.
In addition to these reportable segments, we have certain corporate costs that are not directly attributable to our brands and,
therefore, are not allocated to segments. Such costs primarily include certain administrative, corporate occupancy and information
systems expenses, including Enterprise Resource Planning (“ERP”) system implementation costs. In addition, certain other costs
are not allocated to our reportable segments, including restructuring and other charges (including transaction and transition costs
related to our recent acquisitions) and impairment costs. The new segment structure is consistent with how we plan and allocate
resources, manage our business and assess our performance. All prior period segment information has been recast to reflect the
realignment of our segment reporting structure on a comparable basis. For additional financial information regarding our segments
and corporate unallocated expenses, see Segment Information note in the accompanying consolidated financial statements.
Industry
We operate in the global luxury goods industry. The personal luxury goods market has recently experienced increased
growth, driven by stronger Chinese demand from both international and local consumers and demographic and socioeconomic
shifts resulting in younger consumers purchasing more luxury goods. Accessories remains the largest and fastest growing personal
luxury goods category, driven by handbags and footwear. Over the past several years, retail has been the fastest-growing channel,
largely driven by the rapid and accelerating growth of the e-commerce channel, which is expected to represent 25% of personal
luxury goods sales by 2025. Consumer shopping preferences have continued to shift from physical stores to on-line shopping. As
the overall retail environment becomes increasingly omni-channel, with point of sales evolving into point of touch, we believe
that increased customer engagement and tailoring merchandise to customer shopping and communication preferences are the key
ingredients to growing market share. We believe that our innovative and luxurious product offerings and customer engagement
initiatives across all three brands position us to capitalize on the continued growth of the luxury accessories and footwear product
categories, as they are among our primary product categories of focus, as well as to grow our sales in our other product categories,
such as ready-to-wear where we now have a broader presence across both women’s and men’s offerings.
Geographic Information
We generate revenue globally through our three reporting segments, as described above. We sell our Versace, Jimmy Choo
and Michael Kors products through retail and wholesale channels of distribution in three principal geographic markets: the Americas
(U.S., Canada and Latin America), EMEA (Europe, Middle East and Africa) and Asia. We also have wholesale arrangements
pursuant to which we sell products to our geographic licensees. In addition, we have licensing agreements through which we
license to third parties the use of our Versace, Jimmy Choo and Michael Kors brand names and trademarks, certain production
rights, and sales and/or distribution rights with respect to our brands.
5
The following table details our revenue by segment and geographic location (in millions):
Versace revenue - the Americas
Versace revenue - EMEA (1)
Versace revenue - Asia
Total Versace
Jimmy Choo revenue - the Americas
Jimmy Choo revenue - EMEA (1)
Jimmy Choo revenue - Asia
Total Jimmy Choo
Michael Kors revenue - the Americas
Michael Kors revenue - EMEA (1)
Michael Kors revenue - Asia
Total Michael Kors
Total revenue - the Americas
Total revenue - EMEA (1)
Total revenue - Asia
Total revenue
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
$
$
22
66
49
137
96
321
173
590
3,064
892
555
4,511
3,182
1,279
777
5,238
$
— $
—
—
—
37
123
63
223
2,996
970
530
4,496
3,033
1,093
593
4,719
$
$
—
—
—
—
—
—
—
—
3,141
944
409
4,494
3,141
944
409
4,494
(1) EMEA is comprised of Europe, the Middle East and Africa.
Competitive Strengths
We believe that the following strengths differentiate us from our competitors:
Global Fashion Luxury Group Led by a World-Class Management Team and Renowned Designers. We are a global
fashion luxury group, consisting of three iconic brands defined by fashion luxury products with a reputation for world-class design
and innovation. The design leadership of our founder-designers Donatella Versace, Sandra Choi and Michael Kors is a unique
advantage that we possess. Our founder-led design teams are supported by our senior management team with extensive experience
across a broad range of disciplines in the retail industry, including design, sales, marketing, public relations, merchandising, real
estate, supply chain and finance. With an average of 24 years of experience in the retail industry, including at a number of public
companies, and an average of 12 years experience with our brands, our senior management team has strong creative and operational
experience and a successful track record.
For over 20 years, Donatella Versace has been the artistic director, molding Versace’s iconic style. A true visionary with an
intuition for how to blend fashion, design and culture, Donatella continues to honor the rich and storied Versace heritage founded
in 1978, while constantly evolving and adapting the luxury house to ensure the brand’s continued relevance. Donatella’s most
recent collections for the House of Versace are a testament to Donatella’s unique design vision and are equal parts bold and refined,
evoking both a rock and roll spirit as well as runway glamour. Versace designs have been worn by the world’s most famous
celebrities and most sought-after super models.
Jimmy Choo’s design team is led by Sandra Choi, who has been the Creative Director for the Jimmy Choo brand since its
inception in 1996. Jimmy Choo products are unique, instinctively seductive and chic. The Jimmy Choo brand offers classic and
timeless luxury products, as well as innovative products that are intended to set and lead fashion trends. Jimmy Choo’s products
have a strong red carpet presence and are often worn by global celebrities.
6
The Michael Kors brand was launched over 35 years ago by Mr. Michael Kors, a world-renowned designer, who is responsible
for conceptualizing and directing the design of our Michael Kors products. We believe that the Michael Kors brand name has
become synonymous with luxurious fashion that is timeless and elegant, expressed through the brand’s sophisticated accessories
and ready-to-wear collections. Each of our Michael Kors collections exemplifies the jet-set lifestyle and features high quality
designs, materials and craftsmanship. Mr. Kors has received a number of awards, which recognize the contribution Mr. Kors and
his team have made to the fashion industry and our Company. Some of the most widely recognized global trendsetters and celebrities
wear our Michael Kors collections.
Expertise in the Accessories and Footwear Product Categories. We have strong group expertise in accessories and
footwear. The strength of our Michael Kors luxury collection and our accessible luxury MICHAEL Michael Kors line have allowed
us to expand our brand awareness and position Michael Kors as one of the leading global luxury brands in the accessories product
categories. Capitalizing on the success of our accessories product category, we have begun to further develop the accessories
businesses for Jimmy Choo and Versace, bringing our accessories expertise, including our product category knowledge, our
merchandising best practices and our substantial group buying power to these brands. Our goal is to increase Versace’s accessories
and footwear penetration from less than 35% of revenues in Fiscal 2019 to 60% of Versace’s revenues over time, and to increase
Jimmy Choo's accessories penetration from less than 22% of revenues in Fiscal 2019 to 50% of Jimmy Choo’s revenues over time.
Exceptional Retail Store Footprint. Versace operates in three primary retail formats: boutiques, outlet and e-commerce.
We operated 188 Versace retail stores as of March 30, 2019, in some of the most glamorous cities and the most sought-after
shopping destinations around the world.Versace’s products are distributed worldwide through a global network of highly specialized
stores, which average approximately 1,700 square feet. In addition, we operate Versace e-commerce sites in the U.S., certain parts
of Europe and China.
We operated 208 Jimmy Choo stores as of March 30, 2019, with approximately 77% of stores represented by the brand’s
new global retail store format, which has been progressively rolled out around the world during the past several years. Jimmy
Choo retail stores, comprised of full-price stores and outlets, average approximately 1,300 square feet. In addition, we operate
Jimmy Choo e-commerce sites in the U.S., certain parts of Europe and Japan. During Fiscal 2019, omni-channel capabilities have
been rolled out to Jimmy Choo in the U.S, Europe and Japan.
We operated 853 Michael Kors stores as of March 30, 2019 with four primary retail store formats: collection stores, lifestyle
stores, outlet stores and e-commerce sites. Michael Kors collection stores are located in some of the world’s most prestigious
shopping areas, such as Madison Avenue in New York and Rodeo Drive in California, and average approximately 2,900 square
feet in size. The Michael Kors lifestyle stores are located in some of the world’s most frequented metropolitan shopping locations
and leading regional shopping centers, and average approximately 2,800 square feet in size. We also extend our reach to additional
consumer groups through our outlet stores, which average approximately 4,300 square feet in size. In addition, we also operate
Michael Kors e-commerce sites in the U.S., Canada, certain parts of Europe, China, Japan and South Korea.
World-class Omni and CRM capabilities. We have omni-channel capabilities from best-in-class digital platforms to state-
of-the-art distribution facilities globally, which we will look to leverage across businesses, including the newly acquired Versace
business and our Jimmy Choo business. As part of our plan to continue to implement omni-channel capabilities throughout our
businesses, we plan to leverage our world class distribution centers, including in Venlo, Netherlands, to serve all three brands over
time. We also plan to invest in a new third party operated distribution center in New Jersey, which will service all three of our
brands. Finally, we plan to introduce omni-channel capabilities to Versace and continue the expansion of our store order fulfillment
and in-store pick up capabilities.
Strong Relationships with Premier Department Stores. We partner with leading wholesale customers, such as Bergdorf
Goodman, Saks Fifth Avenue, Neiman Marcus, Bloomingdale’s and Macy’s in North America, as well as Harrods, Harvey Nichols,
Printemps, Selfridges and Galeries Lafayette in Europe. These relationships enable us to access large numbers of our key consumers
in a targeted manner. Our “shop-in-shops” have specially trained staff, as well as customized fixtures, wall casings, decorative
items, and flooring, and provide department store consumers with a more personalized shopping experience than traditional retail
department store configurations. We have engaged with our wholesale customers on various initiatives and have continued to enter
into innovative supply chain partnerships designed to increase the speed at which our luxury fashion products reach the ultimate
consumer. We plan to increase Versace’s and Jimmy Choo’s presence in luxury department stores and for Michael Kors, we have
continued to strategically reduce shipments with the intent to drive more full-price sell throughs in the wholesale channel.
7
Business Strategy
Our goal is to continue to create shareholder value by increasing our revenue and profits and strengthening our global brands.
We plan to achieve our business strategy by focusing on the following five strategic initiatives:
Leverage group expertise and capabilities. We will continue to leverage our group expertise in accessories and footwear
to fuel growth across our portfolio of brands, implementing the best practices from our Michael Kors core accessories business to
our Versace and Jimmy Choo brands. We will also continue to prioritize the development of our e-commerce platforms and omni-
channel capabilities for our brands, leveraging our broad expertise and capabilities in this area. With the addition of Versace, we
see a number of opportunities to create long-term operational synergies as we combine our global competencies and footprint.
These synergies will be primarily focused on opportunities in our supply chain, information systems, back office support and
manufacturing.
Continue to increase our presence in Asia. We plan to continue to diversify our group’s global footprint with an emphasis
on the fast-growing Asia market, where we believe each of our three brands continue to have the potential to significantly grow
market share in the region.
Integrate Versace and continue to build on the brand’s luxury image. We plan to grow the Versace business to $2 billion
in revenues over time. There are five strategic initiatives that we will focus on to achieve this goal. First, we plan to build on
Versace’s luxury runway momentum. Second, we will enhance Versace’s powerful and iconic communications messaging. Third,
we plan to increase Versace’s global footprint from 188 stores to 300 retail stores. Fourth, we will accelerate Versace’s e-commerce
development to create a full omni-channel experience. Finally, we plan to leverage our group’s expertise to expand Versace’s mens
and womens accessories and footwear businesses from less than 35% of revenues to a target of 60% of the brand's revenues over
time, while maintaining Versace’s authoritative presence in women’s and men’s ready-to-wear.
Continue to execute on our strategies to grow the Jimmy Choo brand. We plan to continue to implement our growth
strategies for Jimmy Choo, with a goal of reaching $1 billion in revenues over time. Since the acquisition, we have grown Jimmy
Choo’s retail store base from 150 stores to over 200 stores and are targeting to expand the Jimmy Choo retail footprint to 275
stores globally, with an emphasis on growth in Asia. Maintaining our leadership in footwear for Jimmy Choo remains a top priority,
and we plan to accelerate footwear growth by continuing to expand the strategic fashion active category. In addition, we plan to
continue increasing our presence in the accessories product category by expanding the breadth of new collection offerings, focusing
on visual merchandising and increased marketing, with a goal of growing the accessories business to 50% of Jimmy Choo's
revenues. We also plan to continue to build Jimmy Choo's men's business by expanding the men's fashion active category, growing
the accessory offerings, growing the distribution network and through new marketing initiatives. Our new marketing campaign,
featuring Jimmy Choo’s first global brand ambassador, model Kaia Gerber, aims to attract a younger customer, while simultaneously
highlighting our new active footwear and accessories products, in addition to continuing to showcase our core luxury women’s
fashion footwear.
Continue to leverage the strength of our Michael Kors brand, which remains the foundation for our fashion luxury
group. Our goal is to grow our Michael Kors brand to $5 billion in revenues over the next few years through product innovation,
brand engagement and customer experience. Our focus on product innovation has greatly improved newness across all product
categories for our Michael Kors brand. In accessories, we continue to introduce new product groups, as well as unique design,
style, and craftsmanship. In footwear, we plan to grow our fashion active product offerings and continue fashion innovation. In
women’s apparel, our KORS style head-to-toe dressing remains our key focus, along with our strategic dress and outerwear
categories. We will continue to increase product offerings within menswear, including our new mens footwear collection. In
addition, we will work to expand our Michael Kors ACCESS smartwatch and new Michael Kors fine jewelry collections distribution.
We also plan to continue to focus on brand engagement, capitalizing on Michael Kors’ leading red carpet and social media presence.
Our strategy to enhance customer experience by expanding our omni-channel capabilities and renovating stores also remains a
key priority.
8
Collections and Products
Our total revenue by major product category is as follows (in millions):
March 30,
2019
% of
Total
Fiscal Years Ended
% of
Total
March 31,
2018
April 1,
2017
$
3,139
1,023
698
218
156
4
59.9% $
3,057
64.8% $
3,062
19.5%
13.3%
4.2%
3.0%
0.1%
657
605
250
150
—
13.9%
12.8%
5.3%
3.2%
—%
462
543
281
146
—
$
5,238
$
4,719
$
4,494
% of
Total
68.1%
10.3%
12.1%
6.3%
3.2%
—%
Accessories
Footwear
Apparel
Licensed product
Licensing revenue
Home
Total revenue
Versace
Versace is one of the leading international fashion design houses and a symbol of Italian luxury worldwide, which has
developed its expertise in haute couture to include ready-to-wear, accessories, footwear and home furnishings. Generally, Versace’s
haute couture retails up to $100,000, ready-to-wear retails from $275 to $4,000, accessories retail from $150 to $3,500, and footwear
retails from $275 to $2,500.
Certain product categories, such as Versace Jeans, eyewear, fragrances, jewelry and watches are produced under product
licensing agreements. Swinger SA is the exclusive licensee for Versace Jeans, Luxottica is the exclusive licensee for Versace
eyewear, Euroitalia is the exclusive licensee for Versace fragrances, Samra International is the exclusive licensee for Versace
jewelry, and Vertime is the exclusive licensee for Versace watches. Generally, Versace Jeans retail from $75 to $2,100, Versace
eyewear retails from $220 to $500, Versace fragrances retail from $75 to $200, jewelry retails from $125 to $1,000, and Versace
watches retail from $595 to $3,500.
Jimmy Choo
Jimmy Choo is a leading global luxury accessories brand and offers a distinctive, glamorous and fashion-forward product
range, whose core product offerings are women’s luxury shoes, complemented by accessories, including handbags, smaller leather
goods, scarves and belts, as well as a growing men’s luxury shoes and accessories business. Generally, Jimmy Choo women’s
luxury shoes retail from $425 to $4,600, accessories retail from $600 to $4,800 and men’s shoes retail from $170 to $2,500.
Certain product categories, such as Jimmy Choo fragrances and eyewear are produced under product licensing agreements.
Interparfums SA is the exclusive licensee for Jimmy Choo fragrances and Safilo SpA is the exclusive licensee for Jimmy Choo
eyewear. Generally, Jimmy Choo eyewear retails from $235 to $645 and Jimmy Choo fragrances retail from $75 to $115.
Michael Kors
Michael Kors has three primary collections that offer accessories, footwear and apparel: Michael Kors Collection, MICHAEL
Michael Kors and Michael Kors Mens. The three primary collections and licensed products are offered through our own Michael
Kors retail stores and e-commerce businesses, in department stores around the world and by our exclusive licensees to wholesale
customers in addition to select retailers. The Michael Kors Collection is a sophisticated designer collection for women based on
a philosophy of essential luxury and pragmatic glamour and includes accessories, primarily handbags and small leather goods,
ready-to-wear and footwear. Generally, the Michael Kors Collection women’s handbags and small leather goods retail from $300
to $6,000, footwear retails from $300 to $1,500 and ready-to-wear retails from $400 to $7,500. MICHAEL Michael Kors is the
accessible luxury collection and offers women’s accessories, primarily handbags and small leather goods, as well as footwear and
apparel and is carried in all of the Michael Kors lifestyle stores and leading department stores around the world. MICHAEL Michael
Kors offers handbags designed to meet the fashion and functional requirements of our broad and diverse consumer base. Generally,
MICHAEL Michael Kors handbags retail from $200 to $750, small leather goods retail from $45 to $250, footwear retails from
$50 to $300 and apparel retails from $75 to $600. Michael Kors Mens is an innovative collection of men’s ready-to-wear, accessories,
and footwear with a modern American style. Michael Kors Mens apparel generally retails from $50 to $1,000, men’s accessories
generally retail from $40 to $800 and men’s footwear generally retails from $200 to $400.
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Certain product categories, including watches, jewelry, eyewear, and fragrance and beauty are produced under
product licensing agreements. Fossil is our exclusive licensee for Michael Kors watches and jewelry, including our Michael
Kors ACCESS smartwatches introduced in Fiscal 2017 and our fine jewelry line introduced in Fiscal 2019. Luxottica is our
exclusive licensee for Michael Kors distinctive eyewear inspired by our collections. Estée Lauder is Michael Kors exclusive
women’s and men’s fragrance licensee. Generally, Michael Kors fashion watches retail from $150 to $595, Michael Kors
ACCESS smartwatches retail from $300 to $500, Michael Kors jewelry retails from $55 to $500, Michael Kors eyewear retails
from $100 to $240 and Michael Kors fragrance and related products generally retail from $30 to $125.
Advertising and Marketing
Our marketing strategy is to deliver a brand and product message that is consistent with each of our global brands across
all customer touch points on their path from brand consideration through purchase. Each brand’s global image is created
and executed internally by our creative marketing, visual merchandising and public relations teams, which help to ensure the
consistency of each brand’s unique messaging.
During Fiscal 2019, we began our efforts to increase marketing exposure for Versace with the first ever Versace New
York fashion runway show in December. The show was a testament to Donatella’s unique design vision and fused the sartorial
heritage of Milan with the energy of New York. Versace’s unmistakable looks, which were bold and refined, evoked both a rock
and roll spirit and a runway glamour. The show drew press and celebrities from around the world. The reviews, press coverage
and social media generated from the show continue to expand the global reach of Versace. For our Jimmy Choo brand, we
appointed Victoria Song Qian as our first ever brand ambassador in Asia, and Kaia Gerber was the face of Jimmy Choo’s
Spring/Summer 2019 campaign. With her timeless beauty and fashion pedigree, Kaia’s authenticity transcends generations and is
the perfect representation of the dynamic energy of the Jimmy Choo brand. For our Michael Kors brand, we continued to
work with our global brand ambassador Yang Mi and introduced two new Asia brand ambassadors in South Korea and
Japan. For Spring/Summer 2019, Michael has created an exciting campaign for our MICHAEL Michael Kors line featuring
supermodel Bella Hadid as the new face of our brand. Bella instantly telegraphs the lifestyle, attitude and mood that is
quintessentially jet-set. The imagery reflects the speed, energy and optimism that are the hallmarks of our Company.
In Fiscal 2019, we recognized approximately $158 million in advertising and marketing expenses globally. We engage in
a wide range of integrated marketing programs across various marketing channels, including but not limited to email marketing,
print advertising, outdoor advertising, digital marketing, social media, direct print mailings, public relations outreach, visual
merchandising and partnership marketing, in an effort to engage our existing and potential customer base and ultimately
stimulate sales in a consumer-preferred shopping venue. In addition, our Versace and Michael Kors Spring and Fall ready-to-wear
collections, along with our latest accessories, are showcased at New York and Milan Fashion Weeks. The Versace and Michael
Kors semi-annual runway shows and Jimmy Choo celebrity placements generate extensive media coverage. Jimmy Choo is also
the leading brand in editorial coverage for women’s luxury shoes globally.
Our growing e-commerce businesses provide us with an opportunity to increase the size of our customer database and to
communicate with our consumers to increase online and physical store sales, as well as to continue to build global brand
awareness for our brands. We are continuously improving the functionalities and features on our e-commerce sites to create
innovative ways to keep our brands at the forefront of consumers’ minds by offering a broad selection of products, including
accessories, apparel, and footwear. Since e-commerce growth is critical to our overall growth strategy, we plan to accelerate
Versace’s and Jimmy Choo’s e-commerce and omni-channel development, while continuing to work with select e-commerce
partners.
Manufacturing and Sourcing
We generally contract for the purchase of finished goods principally with independent third-party manufacturing contractors,
whereby the manufacturing contractor is generally responsible for the entire manufacturing process, including the purchase of
piece goods and trim for our Jimmy Choo and Michael Kors brands. For the Versace brand, some of the piece goods and trim
are separately purchased by Versace and provided to the manufacturers, and some are sourced directly by the manufacturers, as
further described below.
Versace has a centrally managed production model for the majority of its products, and buys raw materials and
components for these products. All raw materials arrive in a central warehouse in Novara, Italy and are distributed to
independent third-party manufacturing contractors after the quality control process is complete. The vast majority of Versace’s
production is located in Italy. The remaining production occurs in Turkey, Tunisia, elsewhere in Europe and a small portion is
produced in Asia.
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Jimmy Choo products are also manufactured by independent third-party manufacturing contractors. Most of Jimmy Choo’s
products are produced by specialists in Florence and the Veneto region of Italy, with a small portion produced in Spain and China.
Jimmy Choo has a product development facility in Florence. Jimmy Choo has a 33% ownership interest in one factory, which is
dedicated to Jimmy Choo production. Jimmy Choo typically purchases finished goods and does not purchase raw materials, except
for product development purposes.
Michael Kors contracts for the purchase of finished goods principally with independent third-party manufacturing contractors
that are generally responsible for the entire manufacturing process, including the purchase of piece goods and trim. Product
manufacturing for the Michael Kors brand is allocated among third-party agents based on their capabilities, the availability of
production capacity, pricing and delivery. Michael Kors also has relationships with various agents who source finished goods with
numerous manufacturing contractors on its behalf. This multi-supplier strategy provides specialist skills, scalability, flexibility
and speed to market, as well as diversifies risk. In Fiscal 2019 and Fiscal 2018, one third-party agent sourced approximately 24%
of Michael Kors finished goods purchases, in each period, based on unit volume. Michael Kors’ largest manufacturing contractor,
who produces its products in Asia and who Michael Kors has worked with for over 10 years, accounted for the production of
approximately 21% of its finished products, based on unit volume in Fiscal 2019. Nearly all of our Michael Kors products were
produced in Asia in Fiscal 2019.
The manufacturing contractors and agents for our brands operate under the close supervision of our global manufacturing
divisions and buying agents located in North America, Europe and Asia. All products are produced according to our specifications.
Production staff monitors manufacturing at supplier facilities in order to correct problems prior to shipment of the final product.
Quality assurance is focused on as early as possible in the production process, allowing merchandise to be received at the distribution
facilities and shipped to customers with minimal interruption. See “Import Restrictions and Other Government Regulations” and
Item 1A. —“Risk Factors” — “We primarily use foreign manufacturing contractors and independent third-party agents to source
our finished goods, which poses legal, regulatory, political and economic risks to our business operations.”
Our future manufacturing and sourcing strategy includes creating a manufacturing center of excellence in Italy, as well as
purchasing luxury manufacturing facilities in Italy to support all of our brands, to secure capacity and improve expertise in
development and delivery. While the fashion design process will remain independently managed by each of our brands, we believe
that creating a manufacturing center of excellence, which would combine all functions that support our design teams, from leather
and hardware purchases to investment in machinery and systems, will create synergies and efficiencies for our global fashion
luxury group.
Distribution
Versace owns a central warehouse in Novara, Italy, managed by a third party, which acts as a global hub for Versace’s
primary operations. Versace also has a leased warehouse near Novara operated by the same third party, which serves as a distribution
point for other Versace lines. From these warehouses, products are shipped to regional warehouses that are operated by third parties
in New Jersey, Hong Kong, Beijing and Tokyo, and support the Versace retail business. E-commerce distribution is conducted
through third party providers in Dorsten, Germany, Columbus, Ohio and Beijing, China. Versace’s wholesale business is mainly
serviced from three central warehouses located in Italy, the United States and Japan.
Jimmy Choo uses a shared central warehouse facility in Contone, Switzerland, which acts as a global hub for all Jimmy
Choo operations. From there, products are shipped to regional warehouses in the United Kingdom, the United States, Canada,
China, Hong Kong, South Korea, Japan and United Arab Emirates, largely supporting the Jimmy Choo retail and e-commerce
businesses. Shipments to wholesale customers globally are made from Switzerland and the United States, with some further local
fulfillment. All of the distribution facilities utilized by Jimmy Choo are operated by third parties and are shared with other businesses.
This flexible method reinforces the speed and efficiency of the supply chain and allows the business to deliver Jimmy Choo product
and collections to market rapidly and in line with the industry’s fashion calendar.
Michael Kors primary distribution facility in the United States is the 1,284,420 square foot leased facility in Whittier,
California, which is directly operated and services our Michael Kors retail stores, e-commerce site, and wholesale operations in
the United States. We also engage in omni-channel order fulfillment by filling online orders through our Michael Kors retail stores
and through our click-and-collect service offerings. Our primary Michael Kors distribution facility in Europe is our Company-
owned and operated 1,096,330 square foot distribution facility in the Netherlands, which supports our European operations for
our Michael Kors brand, including our European e-commerce sites. We also have a regional Michael Kors distribution centers in
New Jersey and Canada, which are leased, as well as regional Michael Kors distribution centers in China, Hong Kong, Japan,
South Korea and Taiwan, which are operated by third-parties.
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Intellectual Property
We own VERSACE, JIMMY CHOO and MICHAEL KORS trademarks, as well as other material trademarks, design and
patent rights related to the production, marketing and distribution of our products, both in the United States and in other countries
in which our products are principally sold. We also have applications pending for a variety of related trademarks, designs and
patents in various countries throughout the world. As our worldwide usage of our material trademarks, designs and patents continue
to expand, we continue to strategically apply to register them in key countries where they are used. We expect that our material
trademarks will remain in full force and effect for as long as we continue to use and renew them.
We aggressively police our intellectual property and pursue infringers both domestically and internationally. In addition,
we pursue counterfeiters in the United States, Europe, the Middle East, Asia and elsewhere in the world in both online and offline
channels, working with our network of customs authorities, law enforcement, legal representatives and brand specialists around
the world as well as involvement with industry associations and anti-counterfeiting organizations.
Information Systems
Each of our three brands currently operates using their legacy systems for finance and accounting, supply chain, inventory
control, point-of-sale transactions, store replenishment, and other functions. Our strategy includes consolidating certain systems
across our brands over time to create operational efficiencies, as well as to achieve a common platform across the Company. During
Fiscal 2020, the Company plans to begin a multi-year ERP implementation, which will conform the majority of its processes onto
one global system that will support finance and accounting, procurement, inventory control, and store replenishment. The
implementation of the ERP will require a significant investment in human and financial resources. See Item 1A. “Risk Factors” -
“A material delay or disruption in our information technology systems or e-commerce websites or our failure or inability to upgrade
our information technology systems precisely and efficiently could have a material adverse effect on our business, results of
operations and financial condition.” We also have several other systems supporting functions such as warehouse management,
order management, supply chain management, point of sale and e-commerce.
Employees
At the end of Fiscal 2019, 2018 and 2017, we had approximately 17,797, 14,846 and 13,702 total employees, respectively.
As of March 30, 2019, we had approximately 11,096 full-time employees and approximately 6,701 part-time employees.
Approximately 14,319 of our employees were engaged in retail selling and administrative positions and our remaining employees
were engaged in other aspects of our business as of March 30, 2019. As of March 30, 2019, we have 608 employees covered by
collective bargaining agreements in certain European countries. We consider our relations with both our union and non-union
employees to be good.
Competition
We face intense competition in the product lines and markets in which we operate from both existing and new competitors.
Our products compete with other branded products within their product category. In varying degrees, depending on the product
category involved, we compete on the basis of style, price, customer service, quality, brand prestige and recognition, among other
bases. In our wholesale business, we compete with numerous manufacturers, importers and distributors of products like ours for
the limited space available for product display. Moreover, the general availability of manufacturing contractors allows new entrants
easy access to the markets in which we compete, which may increase the number of our competitors and adversely affect our
competitive position and our business. We believe, however, that we have significant competitive advantages because of the
recognition of our brands and the acceptance of our brands by consumers. See Item 1A. “Risk Factors” — “The markets in which
we operate are highly competitive, both within North America and internationally, and increased competition based on a number
of factors could cause our profitability and/or gross margins to decline.”
Seasonality
We experience certain effects of seasonality with respect to our business. We generally experience greater sales during our
third fiscal quarter, primarily driven by holiday season sales, and the lowest sales during our first fiscal quarter.
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Import Restrictions and Other Governmental Regulations
Virtually all of our imported products are subject to duties which may impact the costs of such products. In addition, countries
to which we ship our products may impose safeguard quotas to limit the quantity of products that may be imported. We rely on
free trade agreements and other supply chain initiatives in order to maximize efficiencies relating to product importation. On May
10, 2019, the United States (“U.S.”) increased the tariff rate from 10% to 25% on $200 million of imports of select product
categories from China. President Trump also announced the potential to expand these tariffs to cover all products entering the U.S.
from Chin. If the U.S. follows through on its further proposed China tariffs, it would negatively effect our business. In addition,
if additional tariffs or trade restrictions are implemented by other countries or by the U.S., the cost of our products could increase
which could adversely affect our business. Additionally, we are subject to government regulations relating to both importation
activities and product labeling, testing and safety. We maintain a global customs and product compliance organization to help
manage our import and related regulatory activity.
Item 1A. Risk Factors
You should carefully read this entire report, including, without limitation, the following risk factors and the section of this
annual report entitled “Note Regarding Forward-Looking Statements.” Any of the following factors could materially adversely
affect our business, results of operations and financial condition. Additional risks and uncertainties not currently known to us or
that we currently view as immaterial may also materially adversely affect our business, results of operations and financial condition.
Acquisitions may not be successfully integrated and may not achieve intended benefits.
We face additional risks associated with our strategy to grow our business through acquisitions of other brands and geographic
licensees, such as our acquisitions of Versace in December 2018 and Jimmy Choo in November 2017. We may not be able to
successfully integrate any licensee or any other business that we may acquire into our own business, or achieve any expected cost
savings or synergies from such integration or we may determine to limit the integration of our brands. The potential difficulties
that we may face that could cause the results of the acquisition of such previously licensed business, Versace, Jimmy Choo, or
any other business that we may acquire to not be in line with our expectations include, among others:
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failure to implement our business plan for the combined business or to achieve anticipated revenue or profitability targets;
delays or difficulties in completing the integration of acquired companies or assets;
higher than expected costs, lower than expected cost savings and/or a need to allocate resources to manage unexpected
operating difficulties;
unanticipated issues in integrating logistics, information and other systems;
unanticipated changes in applicable laws and regulations;
retaining key customers, suppliers and employees;
operating risks inherent in the acquired business and our business;
diversion of the attention and resources of management and resource constraints;
retaining and obtaining required regulatory approvals, licenses and permits;
unanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust
regulators;
assumption of liabilities not identified in due diligence or other unanticipated issues, expenses and liabilities; and
the impact on our internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002.
Our acquisitions of Versace and Jimmy Choo or any other entity that we may acquire may not perform as well as initially
expected, which could have a material adverse effect on our results of operations and financial condition. In addition, we are
required to test goodwill, brand and any other intangible assets acquired as a result of acquisitions for impairment. If such testing
indicates that the carrying value of goodwill, brand or other intangible assets exceeds the related fair value, we would be required
to record an impairment charge for the difference, which could have a material adverse effect on our results of operations and
financial condition.
Additionally, Jimmy Choo outsources its information technology, accounting and other back office activities to a third-
party service provider pursuant to an agreement effective October 2, 2017. There are risks of relying on a third-party provider to
perform these services, which may include experiencing operational challenges and incurring increased expenses, which may
result in a material adverse effect on our business, results of operations and financial condition.
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The long-term growth of our business depends on the successful execution of our strategic initiatives.
As part of our long-term strategy, we intend to grow our market share and revenue through the following initiatives:
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trendsetting and innovative product offerings;
increased brand engagement;
optimizing customer experience;
investing in technology; and
expanding our global presence.
We also intend to support the growth of Versace and Jimmy Choo sales through retail store openings and further developing
each brand’s e-commerce and omni-channel presence, as well as expanding into the luxury accessories market. We cannot guarantee
that we will be able to successfully execute on these strategic initiatives.
For Michael Kors, we intend to continue to optimize the retail store fleet, including through the previously announced
closure of our underperforming Michael Kors full-price retail stores (the “Retail Fleet Optimization Plan”) in order to generate
cost savings and focus on our most highly productive locations through Fiscal 2020. As of March 30, 2019, we closed 100 of our
Michael Kors full-price retail stores under our Retail Fleet Optimization Plan and anticipate finalizing the remainder of the planned
store closures by the end of Fiscal 2020. We cannot guarantee that we will be able to successfully execute on this initiative or
achieve the anticipated cost savings, efficiencies, or other benefits related to the Retail Fleet Optimization Plan.
If we are unable to execute on our strategic initiatives, our business, results of operations and financial condition could be
materially adversely affected.
We face risks associated with operating in international markets and our strategy to continue to expand internationally.
We operate on a global basis, with approximately 43% of our total revenue from operations outside of the U.S. during Fiscal
2019. As a result, we are subject to the risks of doing business internationally, including political and economic instability in
foreign countries, laws, regulations and policies of foreign governments, potential negative consequences from changes in taxation
policies, political or civil unrest, acts of terrorism, military actions or other conditions. Economic instability and unsettled regional
and global conflicts may negatively affect consumer spending by foreign tourists and local consumers in the various regions where
we operate, which could adversely affect our revenues and results of operations. We also sell our products at varying retail price
points based on geographic location that yield different gross profit margins and we achieve different operating profit margins,
depending on geographic region, due to a variety of factors including product mix, store size, occupancy costs, labor costs and
retail pricing. Changes in any one or more of these factors could result in lower revenues, increased costs, and negatively impact
our business, results of operations and financial condition.
There are some countries where we do not yet have significant operating experience, and in most of these countries we face
established competitors with significantly more operating experience in those locations. Many countries have different operational
characteristics, including, but not limited to, employment and labor, transportation, logistics, real estate (including lease terms)
and local reporting or legal requirements. Furthermore, consumer demand and behavior, as well as tastes and purchasing trends
may differ in these countries and, as a result, sales of our product may not be successful, or the margins on those sales may not
be in line with those we currently anticipate. In addition, in many of these countries there is significant competition to attract and
retain experienced and talented employees. If our international expansion plans are unsuccessful, it could have a material adverse
effect on our business, results of operations and financial condition.
In addition, on June 23, 2016, voters in the United Kingdom (“U.K.”) approved an advisory referendum to withdraw from
the European Union (“Brexit”). The Brexit vote and the perceptions as to the impact of the withdrawal of the U.K. from the
European Union (“EU”) may adversely affect business activity, political stability and economic conditions in the U.K., the EU
and elsewhere. On March 29, 2017, the U.K. triggered Article 50 of the Lisbon Treaty formally starting negotiations with the EU.
The U.K. and EU announced in March 2018 an agreement in principle to transitional provisions under which EU law would remain
in force in the U.K. until the end of December 2020, but this remains subject to the successful conclusion of a final withdrawal
agreement between the parties. In the absence of such an agreement, there would be no transitional provisions and a “hard” Brexit
would occur on October 31, 2019. Although the terms of the U.K.’s future relationship with the EU are still unknown, it is possible
that there will be increased regulatory and legal complexities, including potentially divergent national laws and regulations between
the U.K. and EU. Brexit may also cause disruption and create uncertainty surrounding our business, including affecting our
relationship with our existing and future customers, suppliers and employees and resulting in increased cost by way of new or
elevated customs duties or financial implications from operational challenges. There can be no assurance that any or all of these
events will not have a material adverse effect on our business, results of operations and financial condition.
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Our business is subject to risks associated with importing products, and the imposition of additional duties and any changes
to international trade agreements could have a material adverse effect on our business, results of operations and financial
condition.
There are risks inherent to importing our products. Virtually all of our imported products are subject to duties which may
impact the cost of such products. In addition, countries to which we ship our products may impose safeguard quotas to limit the
quantity of products that may be imported. We rely on free trade agreements and other supply chain initiatives in order to maximize
efficiencies relating to product importation. Additionally, we are subject to government regulations relating to importation activities.
The imposition of taxes, duties and quotas and/or the withdrawal from or material modification to trade agreements could have a
material adverse effect on our business, results of operations and financial condition. On May 10, 2019, the U.S. increased the
tariff rate from 10% to 25% on $200 million of imports of select product categories from China. President Trump also announced
the potential to expand these tariffs to cover all products entering the U.S. from China including ready-to-wear, footwear and
men’s products. If the U.S. follows through on its further proposed China tariffs, it would negatively effect our business. In addition,
if additional tariffs or trade restrictions are implemented by other countries or by the U.S., the cost of our products could increase
which could adversely affect our business.
Privacy breaches and other cyber security risks related to our business could negatively affect our reputation, credibility and
business.
We are dependent on information technology (“IT”) systems and networks for a significant portion of our direct-to-consumer
sales, including our e-commerce sites and retail business credit card transaction authorization and processing. We are responsible
for storing data relating to our customers and employees and also rely on third party vendors for the storage, processing and
transmission of personal and Company information. Consumers, lawmakers and consumer advocates alike are increasingly
concerned over the security of personal information transmitted over the Internet, consumer identity theft and privacy and the
retail industry, in particular, has been the target of many recent cyber-attacks. In addition to taking the necessary precautions
ourselves, we generally require that third-party service providers implement reasonable security measures to protect our employees’
and customers’ identity and privacy. We do not, however, control these third-party service providers and cannot guarantee that no
electronic or physical computer break-ins or security breaches will occur in the future. Cyber security breaches, including physical
or electronic break-ins, security breaches due to employee error or misconduct, attacks by “hackers,” phishing scams, malicious
software programs such as viruses and malware, and other breaches outside of our control, could result in unauthorized access or
damage to our IT systems and the IT systems of our third party service providers. Despite our efforts and the efforts of our third-
party service providers to secure our and their IT systems, attacks on these systems do occur from time to time. As the techniques
used to obtain unauthorized access to IT systems becomes more varied and sophisticated and the occurrence of such security
breaches becomes more frequent, we and our third-party service providers may be unable to adequately anticipate these techniques
and implement appropriate preventative measures. While we maintain cyber risk insurance to provide some coverage for certain
risks associated with cyber security incidents, there is no assurance that such insurance would cover all or a significant portion of
the costs or consequences associated with a cyber security incident. A significant breach of customer, employee or Company data
could damage our reputation, our relationship with customers and our brands, and could result in lost sales, sizable fines, significant
breach-notification costs and lawsuits, as well as adversely affect our results of operations. We may also incur additional costs in
the future related to the implementation of additional security measures to protect against new or enhanced data security and
privacy threats, or to comply with current and new state, federal and international laws governing the unauthorized disclosure of
confidential information which are continuously being enacted and proposed such as the General Data Protection Regulation in
the EU and the California Consumer Privacy Act in California in the United States as well as increased cyber security protection
costs such as organizational changes, deploying additional personnel and protection technologies, training employees, engaging
third party experts and consultants and lost revenues resulting from unauthorized use of proprietary information.
A material delay or disruption in our information technology systems or e-commerce websites or our failure or inability to
upgrade our information technology systems precisely and efficiently could have a material adverse effect on our business,
results of operations and financial condition.
We rely extensively on our IT systems to track inventory, manage our supply chain, record and process transactions, manage
customer communications, summarize results and manage our business. The failure of our IT systems to operate properly or
effectively, problems with transitioning to upgraded or replacement systems, or difficulty in/failure to implement new systems,
could adversely affect our business. We also operate a number of e-commerce websites throughout the world.
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We have embarked on a multi-year ERP implementation. We began this implementation in early Fiscal 2020 and it is expected
to be implemented over the next several years. Implementing new systems carries substantial risk, including failure to operate as
designed, failure to properly integrate with other systems, potential loss of data or information, cost overruns, implementation
delays and disruption of operations. Third-party vendors are also relied upon to design, program, maintain and service our ERP
implementation program. Any failures of these vendors to properly deliver their services could similarly have a material adverse
effect on our business. In addition, any disruptions or malfunctions affecting our ERP implementation plan could cause critical
information upon which we rely to be delayed, defective, corrupted, inadequate or inaccessible.
Our IT systems and e-commerce websites may also be subject to damage and/or interruption from power outages, computer,
network and telecommunications failures, malicious software such as viruses and malware, attacks by “hackers”, security breaches,
usage errors or misconduct by our employees and bad acts by our customers and website visitors. If our IT systems or e-commerce
websites are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we
may suffer loss of critical data (including our customer data) and interruptions or delays in our operations in the interim.
Any material delay or disruption in our IT systems or e-commerce websites or our failure or inability to upgrade IT systems
effectively could harm our reputation and credibility, and could have a material adverse effect on our business, results of operations
and financial condition.
The markets in which we operate are highly competitive, both within North America and internationally, and increased
competition based on a number of factors could cause our profitability and/or gross margins to decline.
Our brands face intense competition from other accessories, footwear and apparel producers and retailers, including,
primarily European and American international luxury brands. In addition, we face competition through third party distribution
channels that sell our merchandise, such as e-commerce, department stores and specialty stores. Competition is based on a number
of factors, including, without limitation, the following:
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anticipating and responding to changing consumer demands in a timely manner;
establishing and maintaining favorable brand-name recognition;
determining and maintaining product quality;
maintaining key employees;
maintaining and growing market share;
developing quality and differentiated products that appeal to consumers;
establishing and maintaining acceptable relationships with retail customers;
pricing products appropriately;
providing appropriate service and support to retailers;
optimizing retail and supply chain capabilities;
determining size and location of retail and department store selling space; and
protecting intellectual property.
In addition, some of our competitors may be significantly larger and more diversified than us and may have significantly
greater financial, technological, manufacturing, sales, marketing and distribution resources than we do. Their greater capabilities
in these areas may enable them to better withstand periodic downturns in the accessories, footwear and apparel industries, compete
more effectively on the basis of price and production and more quickly develop new products. The general availability of
manufacturing contractors and agents also allows new entrants easy access to the markets in which we compete, which may
increase the number of our competitors and adversely affect our competitive position and our business. Any increased competition,
or our failure to adequately address any of these competitive factors, could result in reduced revenues, which could adversely
affect our business, results of operations and financial condition.
Competition, along with other factors such as consolidation, changes in consumer spending patterns and a highly promotional
retail selling environment, could also result in significant pricing pressure. These factors may cause us to reduce our sales prices
to our wholesale customers and retail consumers, which could cause our gross margins to decline if we are unable to appropriately
manage inventory levels and/or otherwise offset price reductions with comparable reductions in our operating costs. If our sales
prices decline and we fail to sufficiently reduce our product costs or operating expenses, our profitability may decline, which could
have a material adverse effect on our business, results of operations and financial condition.
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Our retail stores are heavily dependent on the ability and desire of consumers to travel and shop and a decline in consumer
traffic could have a negative effect on our comparable store sales and store profitability resulting in impairment charges, which
could have a material adverse effect on our business, results of operations and financial condition.
Reduced travel resulting from economic conditions, fuel shortages, increased fuel prices, travel restrictions, travel concerns
and other circumstances, including adverse weather conditions, disease epidemics and other health-related concerns, war, terrorist
attacks or the perceived threat of war or terrorist attacks could have a material adverse effect on us, particularly if such events
impact our customers’ desire to travel to our retail stores. In addition, other factors that could impact the success of our retail stores
include: (i) the location of the mall or the location of a particular store within the mall; (ii) the other tenants occupying space at
the mall; (iii) vacancies within the mall; (iv) increased competition in areas where the malls are located; (v) the amount of advertising
and promotional dollars spent on attracting consumers to the malls; and (vi) a shift toward online shopping. A decline in consumer
traffic could have a negative effect on our comparable store sales and/or average sales per square foot and store profitability. If
our retail stores underperform due to declining consumer traffic or otherwise and our expected future cash flows of the related
underlying retail store asset do not exceed such asset’s carrying value, we may incur store impairment charges. A decline in future
comparable store sales and/or store profitability or failure to meet market expectations or the incurrence of impairment charges
relating to our retail store fleet could have a material adverse effect on our business, results of operations and financial condition.
Our industry is subject to significant pricing pressure caused by many factors which may cause our profitability and gross
margins in the future to be materially lower than our expectations.
Our industry is subject to significant pricing pressure caused by many factors, including intense competition and a highly
promotional environment, fragmentation in the retail industry, pressure from retailers to reduce the costs of products, changes in
consumer spending, fashion trends, current economic conditions, pricing, inflation, the timing of the release of new merchandise
and promotional events, changes in our merchandise mix, the success of marketing programs and weather conditions. These factors
may cause our profitability and gross margins in the future to be materially lower than in recent periods and our expectations,
which could have a material adverse effect on our business, results of operations and financial condition. If we misjudge the market
for our products, we may be faced with significant excess inventories for some products and missed opportunities for other products.
If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess and slow-moving inventory,
which also may negatively impact our gross margin and profitability.
We may not be able to respond to changing fashion and retail trends in a timely manner, which could have a material adverse
effect on our brands, business, results of operations and financial condition.
The accessories, footwear and apparel industries have historically been subject to rapidly changing fashion trends and
consumer preferences. We believe that our success is largely dependent on the images of our brands and ability to anticipate and
respond promptly to changing consumer demands and fashion trends in the design, styling, production, merchandising and pricing
of products. If we do not correctly gauge consumer needs and fashion trends and respond appropriately, consumers may not
purchase our products and our brand names and the images of our brands may be impaired. Even if we react appropriately to
changes in fashion trends and consumer preferences, consumers may consider our brands to be outdated or associate our brands
with styles that are no longer popular or trend-setting. Any of these outcomes could have a material adverse effect on our brands,
our business, results of operations and financial condition.
The success of our business also depends on our ability to continue to develop and maintain a reliable digital experience
for our customers. We strive to give our customers a seamless omni-channel experience both in stores and through digital
technologies, such as computers, mobile phones, tablets, and other devices. We also use social media to interact with our customers
and enhance their shopping experience. Our inability to develop and continuously improve our digital brand engagement could
negatively affect our ability to compete with other brands, which could adversely impact our business, results of operations and
financial condition.
The accessories, footwear and apparel industries are heavily influenced by general macroeconomic cycles that affect consumer
spending and a prolonged period of depressed consumer spending could have a material adverse effect on our business, results
of operations and financial condition.
The accessories, footwear and apparel industries have historically been subject to cyclical variations, recessions in the
general economy and uncertainties regarding future economic prospects that can affect consumer spending habits. Purchases of
discretionary luxury items, such as our products, tend to decline during recessionary periods when disposable income is lower.
The success of our operations depends on a number of factors impacting discretionary consumer spending, including general
economic conditions, consumer confidence, wages and unemployment, housing prices, consumer debt, interest rates, fuel and
energy costs, taxation and political conditions. A worsening of the economy may negatively affect consumer and wholesale
purchases of our products and could have a material adverse effect on our business, results of operations and financial condition.
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We are dependent on a limited number of distribution facilities. If one or more of our distribution facilities experiences
operational difficulties or becomes inoperable, it could have a material adverse effect on our business, results of operations
and financial condition.
We operate a limited number of distribution facilities. Our ability to meet the needs of our own retail stores and e-commerce
sites, as well as our wholesale customers depends on the proper operation of these distribution facilities. If any of these distribution
facilities were to shut down or otherwise become inoperable or inaccessible for any reason, we could suffer a substantial loss of
inventory and/or disruptions of deliveries to our retail and wholesale customers. In addition, we could incur significantly higher
costs and longer lead times associated with the distribution of our products during the time it takes to reopen or replace the damaged
facility. Any of the foregoing factors could result in decreased sales and have a material adverse effect on our business, results of
operations and financial condition.
In addition, we have been moving into new and larger facilities as needed and have been concurrently implementing new
warehouse management systems to further support our efforts to operate with increased efficiency and flexibility. There are risks
inherent in operating in new distribution environments and implementing new warehouse management systems, including
operational difficulties that may arise with such transitions. We may experience shipping delays should there be any disruptions
in our new warehouse management systems or warehouses themselves.
The departure of members of our executive management and other key employees could have a material adverse effect on our
business.
We depend on the services and management experience of executive officers, who have substantial experience and expertise
in our business. We also depend on other key employees involved in our design and marketing operations, including our creative
officers for each of our brands, Ms. Donatella Versace, Ms. Sandra Choi and Mr. Michael Kors. Competition for qualified personnel
in the fashion industry is intense, and competitors may use aggressive tactics to recruit our executive officers and key employees.
Our ability to attract and retain employees is influenced by our ability to offer competitive compensation and benefits, employee
morale, our reputation, recruitment by other employers, perceived internal opportunities, non-competition and non-solicitation
agreements and macro unemployment rates. Although we have entered into employment agreements with our executive officers
and other key employees, we may not be able to retain the services of such individuals in the future. The loss of services of one
or more of these individuals or any negative public perception with respect to, or relating to, the loss of one or more of these
individuals, could have a material adverse effect on our business, results of operations and financial condition. In addition, our
operational efficiency initiatives as well as acquisitions and related integration activity may intensify this risk.
Fluctuations in our tax obligations and changes in tax laws, treaties and regulations may have a material adverse impact on
our future effective tax rates and results of operations.
Our subsidiaries are subject to taxation in the U.S. and various foreign jurisdictions, with the applicable tax rates varying
by jurisdiction. As a result, our overall effective tax rate is affected by the proportion of earnings from the various tax jurisdictions.
We record tax expense based on our estimates of taxable income and required reserves for uncertain tax positions in multiple tax
jurisdictions. At any time, there are multiple tax years that are subject to examinations by various taxing authorities. The ultimate
resolution of these audits and negotiations with taxing authorities may result in a settlement amount that differs from our original
estimate. Any proposed or future changes in tax laws, treaties and regulations or interpretations where we operate could have a
material adverse effect on our effective tax rates, results of operations and financial condition.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (the “Tax Act”). The Tax Act included significant changes to the U.S. corporate income tax system including, among
other things, lowering the U.S. statutory federal tax rate to 21% and implementing a territorial tax system. The Tax Act also added
many new provisions, including changes to bonus depreciation, limits on the deductions for executive compensation and interest
expense, a tax on global intangible low-taxed income, the base erosion anti-abuse tax and a deduction for foreign derived intangible
income.
On March 26, 2015, the U.K. enacted new Diverted Profits Tax legislation (the “DPT”), which was effective on April 1,
2015. Under the DPT, profits of certain multinational enterprises (such as the Company) deemed to have been artificially diverted
from the U.K. will be taxed at a rate of 25%. While the Company believes that all of its affiliated entities and the transactions
among them have the required economic substance, there is no assurance that this legislation will not have a material effect on its
results of operations and financial condition.
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We and our subsidiaries are also engaged in a number of intercompany transactions. Although we believe that these
transactions reflect arm’s-length terms and that proper transfer pricing documentation is in place, the transfer prices and conditions
may be scrutinized by local tax authorities, which could result in additional tax liabilities. On October 5, 2015, the Organization
for Economic Co-operation and Development, an international association of thirty four countries, including the U.S. and U.K.,
released the final reports from its Base Erosion and Profit Shifting (BEPS) Action Plans. The BEPS recommendations covered a
number of issues, including country-by-country reporting, permanent establishment rules, transfer pricing rules and tax treaties.
Future tax reform resulting from this development may result in changes to long-standing tax principles, which could adversely
affect our effective tax rate or result in higher cash tax liabilities.
A substantial portion of our revenue is derived from a small number of large wholesale customers, and the loss of any of these
wholesale customers could substantially reduce our total revenue.
A small number of our wholesale customers account for a significant portion of our sales. Revenue from our five largest
wholesale customers represented 19% of our total revenue for Fiscal 2019 and 19% of our total revenue for Fiscal 2018. We do
not have written agreements with any of our wholesale customers and purchases generally occur on an order-by-order basis. A
decision by any of our major wholesale customers, whether motivated by marketing strategy, competitive conditions, financial
difficulties or otherwise, to decrease significantly the amount of merchandise purchased from us or our licensing partners, or to
change their manner of doing business with us or our licensing partners, could substantially reduce our revenue and have a material
adverse effect on our profitability. During the past several years, the retail industry has experienced a great deal of consolidation
and other ownership changes and we expect such changes will continue. In addition, store closings by our wholesale customers
decrease the number of stores carrying our products, while the remaining stores may purchase a smaller amount of our products
and/or may reduce the retail floor space designated for our brands. Additionally, certain of our wholesale customers, particularly
those located in the U.S., have become highly promotional and have aggressively marked down their merchandise. Such promotional
activity could negatively impact our business. In the future, retailers may further consolidate, undergo bankruptcy, restructurings
or reorganizations, realign their affiliations or reposition their stores’ target markets. Any of these types of actions could decrease
the number of stores that carry our products or increase the ownership concentration within the retail industry. These changes
could decrease our opportunities in the market, increase our reliance on a smaller number of large wholesale customers and decrease
our negotiating strength with our wholesale customers. These factors could have a material adverse effect on our business, results
of operations and financial condition.
Our business is exposed to foreign currency exchange rate fluctuations.
Our results of operations for our international subsidiaries are exposed to foreign exchange rate fluctuations as the financial
results of the applicable subsidiaries are translated from the local currency into U.S. dollars during financial statement consolidation.
If the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions could
impact our consolidated results of operations. In addition, we have intercompany notes amongst certain of our non-U.S. subsidiaries,
which may be denominated in a currency other than the local currency of a particular reporting entity. As a result of using a currency
other than the functional currency of the related subsidiary, results of these operations may be adversely affected during times of
significant fluctuation between the functional currency of that subsidiary and the denomination currency of the note. We
continuously monitor our foreign currency exposure and hedge a portion of our foreign subsidiaries’ foreign currency-denominated
inventory purchases to minimize the impact of changes in foreign currency exchange rates. However, we cannot fully anticipate
all of our foreign currency exposures and cannot ensure that these hedges will fully offset the impact of foreign currency exchange
rate fluctuations.
As a result of operating retail stores and concessions in various countries outside of the U.S., we are also exposed to market
risk from fluctuations in foreign currency exchange rates, particularly the Euro, the British Pound, the Chinese Renminbi, the
Japanese Yen, the Korean Won and the Canadian Dollar, among others. A substantial weakening of foreign currencies against the
U.S. Dollar could require us to raise our retail prices or reduce our profit margins in various locations outside of the U.S. In
addition, our sales and profitability could be negatively impacted if consumers in those markets were unwilling to purchase our
products at increased prices.
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We are subject to risks associated with leasing retail space under long-term, non-cancelable leases and are required to make
substantial lease payments under our operating leases. If we close a leased retail space, we remain obligated under the applicable
lease. We also may be unable to renew leases at the end of their terms.
We do not own any of our store facilities; instead, we lease all of our stores under operating leases. Our leases generally
have terms of up to 10 years, generally require a fixed annual rent and most require the payment of additional rent if store sales
exceed a negotiated amount. Certain of our European stores also require initial investments in the form of key money to secure
prime locations, which may be paid to landlords or existing lessees. Generally, our leases are “net” leases, which require us to pay
all of the costs of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases at our option. Payments
under these operating leases account for a significant portion of our operating costs. For example, as of March 30, 2019, we were
party to operating leases associated with our stores as well as other corporate facilities requiring future minimum lease payments
aggregating to $1.7 billion through Fiscal 2024 and approximately $509 million thereafter through Fiscal 2044. We previously
announced that we intend to optimize the Michael Kors retail store fleet, including, through the closure of between 100 and 125
of Michael Kors full-price underperforming retail stores. In connection with our Retail Fleet Optimization Plan, we may remain
obligated under the applicable lease for, among other things, payment of the base rent for the balance of the lease term. In some
instances, we may be unable to close an underperforming retail store due to continuous operation provisions in our leases. In
addition, as each of our leases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all,
which could cause us to close retail stores in desirable locations. Our substantial operating lease obligations, including with respect
to closed retail spaces, could have a material adverse effect on our business, results of operations and financial condition.
Our current and future licensing and joint venture arrangements may not be successful and may make us susceptible to the
actions of third parties over whom we have limited control.
We have entered into a select number of product licensing agreements with companies that produce and sell, under our
trademarks, products requiring specialized expertise. We have also entered into a number of select licensing agreements pursuant
to which we have granted third parties certain rights to distribute and sell our products in certain geographical areas and have a
number of joint ventures. In the future, we may enter into additional licensing and/or joint venture arrangements. Although we
take steps to carefully select our partners, such arrangements may not be successful. Our partners may fail to fulfill their obligations
under their agreements or have interests that differ from or conflict with our own, such as the timing of new store openings, the
pricing of our products and the offering of competitive products. In addition, the risks applicable to the business of our partners
may be different than the risks applicable to our business, including risks associated with each such partner’s ability to:
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obtain capital;
exercise operational and financial control over its business;
manage its labor relations;
maintain relationships with suppliers;
manage its credit and bankruptcy risks; and
maintain customer relationships.
Any of the foregoing risks, or the inability of any of our partners to successfully market our products or otherwise conduct
its business, may result in loss of revenue and competitive harm to our operations in regions or product categories where we have
entered into such licensing arrangements.
We rely on our partners to preserve the value of our brands. Although we attempt to protect our brands through, among
other things, approval rights over store location and design, product design, production quality, packaging, merchandising,
distribution, advertising and promotion of our stores and products, we may not be able to control the use by our partners of our
brand. The misuse of our brand by a licensing or joint venture partner could have a material adverse effect on our business, results
of operations and financial condition.
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Increases in the cost of raw materials could increase our production costs and cause our operating results and financial
condition to suffer.
The costs of raw materials used in our products are affected by, among other things, weather, consumer demand, speculation
on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries and
other factors that are generally unpredictable and beyond our control. We are not always successful in our efforts to protect our
business from the volatility of the market price of raw materials and our business can be materially affected by dramatic movements
in prices of raw materials. The ultimate effect of this change on our earnings cannot be quantified, as the effect of movements in
raw materials prices on industry selling prices are uncertain, but any significant increase in these prices could have a material
adverse effect on our business, results of operations and financial condition.
We primarily use foreign manufacturing contractors and independent third-party agents to source our finished goods, which
poses legal, regulatory, political and economic risks to our business operations.
Our products are primarily produced by, and purchased or procured from, independent manufacturing contractors located
mainly in Asia and Europe. A manufacturing contractor’s failure to ship products to us in a timely manner or to meet the required
quality standards could cause us to miss the delivery date requirements of our customers for those items. The failure to make
timely deliveries may cause customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could
have a material adverse effect on us. In addition, any of the following factors could negatively affect our ability to produce or
deliver our products and, as a result, could have a material adverse effect on our business, results of operations and financial
condition:
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political or labor instability, labor shortages (stemming from labor disputes or otherwise), or increases in costs of
labor or production in countries where manufacturing contractors and suppliers are located;
significant delays or disruptions in delivery of our products due to labor disputes or strikes at the location of the
source of our goods and/or at ports of entry;
political or military conflict involving the United States or the EU, which could cause a delay in the transportation
of our products and raw materials and increase transportation costs;
heightened terrorism security concerns, which could subject imported or exported goods to additional, more frequent
or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods of time
or could result in increased scrutiny by customs officials for counterfeit goods, leading to lost sales, increased costs
for our anti-counterfeiting measures and damage to the reputation of our brands;
a significant decrease in availability or an increase in the cost of raw materials;
disease epidemics and health-related concerns, which could result in closed factories, reduced workforces, scarcity
of raw materials and scrutiny or embargoing of goods produced in infected areas;
the migration and development of manufacturing contractors, which could affect where our products are or are
planned to be produced;
imposition of regulations, quotas and safeguards relating to imports and our ability to adjust in a timely manner to
changes in trade regulations, which, among other things, could limit our ability to produce products in cost-effective
countries that have the labor and expertise needed;
increases in the costs of fuel, travel and transportation;
imposition of duties, taxes and other charges on imports, including if the United States follows through on its proposed
additional China tariffs;
significant fluctuation of the value of the U.S. Dollar against foreign currencies; and
restrictions on transfers of funds out of countries where our foreign licensees are located.
We do not have written agreements with any of our third-party manufacturing contractors. As a result, any single
manufacturing contractor could unilaterally terminate its relationship with us at any time. For example, in Fiscal 2019, Michael
Kors’ largest manufacturing contractor, who produces its products in Asia and who Michael Kors has worked with for over ten
years, accounted for the production of 21% of its finished products, based on dollar volume. Our inability to promptly replace
manufacturing contractors that terminate their relationships with us or cease to provide high quality products in a timely and cost-
efficient manner could have a material adverse effect on our business, results of operations and financial condition, and impact
the cost and availability of our goods.
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In addition, Michael Kors uses third-party agents to source its finished goods with numerous manufacturing contractors on
its behalf. Any single agent could unilaterally terminate its relationship with Michael Kors at any time. In Fiscal 2019, Michael
Kors’ largest third-party agent, whose primary place of business is Hong Kong and who Michael Kors has worked with for over
10 years, sourced approximately 24% of its purchases of finished goods, based on unit volume. Our inability to promptly replace
agents that terminate their relationships with us or cease to provide high quality service in a timely and cost-efficient manner could
have a material adverse effect on our business, results of operations and financial condition.
If we fail to comply with labor laws or collective bargaining agreements, or if our manufacturing contractors fail to use
acceptable, ethical business practices, our business and reputation could suffer.
We are subject to labor laws governing relationships with employees, including minimum wage requirements, overtime,
working conditions and citizenship requirements. Versace and Jimmy Choo are also subject to collective bargaining agreements
with respect to employees in certain European countries. Compliance with these laws and regulations, as well as collective
bargaining agreements may lead to increased costs and operational complexity and may increase our exposure to governmental
investigations or litigation.
We require our manufacturing contractors to operate in compliance with applicable laws, rules and regulations regarding
working conditions, employment practices and environmental compliance. Additionally, we impose upon our business partners
operating guidelines that require additional obligations in those three areas in order to promote ethical business practices, and our
staff and third parties we retain for such purposes periodically visit and monitor the operations of our manufacturing contractors
to determine compliance. However, we do not control our manufacturing contractors or their labor and other business practices.
If one of our manufacturing contractors violates applicable labor or other laws, rules or regulations or implements labor or other
business practices that are generally regarded as unethical in the United States, the shipment of finished products to us could be
interrupted, orders could be cancelled, relationships could be terminated and our reputation could be damaged. Any of these events
could have a material adverse effect on our business, results of operations and financial condition.
We may be unable to protect our trademarks and other intellectual property rights, and others may allege that we infringe upon
their intellectual property rights.
Our VERSACE, JIMMY CHOO and MICHAEL KORS trademarks, as well as other material trademark, design and patent
rights related to the production, marketing and distribution of our products, are important to our success and our competitive
position. We are susceptible to others imitating our products and infringing on our intellectual property rights in the Americas,
EMEA, Asia and elsewhere in the world in both online and offline channels. Our brands enjoy significant worldwide consumer
recognition and the generally higher pricing of our products creates additional incentive for counterfeiters to infringe on our brands.
We work with customs authorities, law enforcement, legal representatives and brand specialists globally in an effort to prevent
the sale of counterfeit products, but we cannot guarantee the extent to which our efforts to prevent counterfeiting of our brands
and other intellectual property infringement will be successful. Such counterfeiting and other infringement could dilute our brands
and harm our reputation and business.
Our trademark applications may fail to result in registered trademarks or provide the scope of coverage sought, and others
may seek to invalidate our trademarks or block sales of our products as a violation of their trademarks and intellectual property
rights. In addition, others may assert rights in, or ownership of, trademarks and other intellectual property rights of ours or in
trademarks that are similar to ours or trademarks that we license and/or market, and we may not be able to successfully resolve
these types of conflicts to our satisfaction. In some cases, trademark owners may have prior rights to our trademarks or similar
trademarks. Furthermore, certain foreign countries may not protect trademarks and other intellectual property rights to the same
extent as do the laws of the United States or the European Union.
From time to time, in the ordinary course of our business, we become involved in opposition and cancellation proceedings
with respect to trademarks similar to some of our brands. Any litigation or dispute involving the scope or enforceability of our
intellectual property rights or any allegation that we infringe upon the intellectual property rights of others could be costly and
time-consuming and could result, if determined adversely to us, in harm to our competitive position.
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Our share price may periodically fluctuate based on the accuracy of our earnings guidance or other forward-looking statements
regarding our financial performance.
Our business and long-range planning process is designed to maximize our long-term growth and profitability and not to
achieve an earnings target in any particular fiscal quarter. We believe that this longer-term focus is in the best interests of our
Company and our shareholders. At the same time, however, we recognize that it is helpful to provide investors with guidance as
to our forecast of total revenue, earnings per share, comparable store sales and other financial metrics or projections. While we
generally expect to provide updates to our financial guidance when we report our results each fiscal quarter, we do not have any
responsibility to update any of our forward-looking statements at such times or otherwise. In addition, any longer-term guidance
that we provide is based on goals that we believe, at the time guidance is given, are reasonably attainable for growth and performance
over a number of years. However, such long-range targets are more difficult to predict than our current quarter and fiscal year
expectations. If, or when, we announce actual results that differ from those that have been predicted by us, outside investment
analysts, or others, our share price could be adversely affected. Investors who rely on these predictions when making investment
decisions with respect to our securities do so at their own risk. We take no responsibility for any losses suffered as a result of such
changes in our share price.
We periodically return value to shareholders through our share repurchase program. Investors may have an expectation that
we will repurchase all shares available under our share repurchase program. The market price of our securities could be adversely
affected if our share repurchase activity differs from investors’ expectations or if our share repurchase program were to terminate.
Restrictive covenants in our indebtedness agreements may restrict our ability to pursue our business strategies.
On November 15, 2018, we entered into a third amended and restated senior unsecured credit facility (as amended, the
“2018 Credit Facility”) with, among others, JPMorgan Chase Bank, N.A., as administrative agent. The Company and its U.S.,
Canadian, Dutch and Swiss subsidiaries are the borrowers under the 2018 Credit Facility. The borrowers and certain material
subsidiaries of the Company provide unsecured guarantees of the 2018 Credit Facility. The agreement that governs our 2018 Credit
Facility contains a number of restrictive covenants that impose operating and financial restrictions on us, and the Indenture
governing our senior notes contain certain restrictions, which collectively may limit our ability to engage in acts that may be in
our long-term best interest, including restrictions on our ability to:
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incur additional indebtedness and guarantee indebtedness;
pay dividends or make other distributions or repurchase or redeem capital stock;
make loans and investments, including acquisitions;
sell assets;
incur liens;
enter into transactions with affiliates; and
consolidate, merge or sell all or substantially all of our assets.
In addition, the restrictive covenants in the credit agreement governing our New Credit Facilities require us to maintain a
ratio of the sum of total indebtedness plus 6.0 times consolidated rent expense for the last four fiscal quarters to Consolidated
EBITDAR of no greater than 3.75 to 1.0. Our ability to meet this financial ratio can be affected by events beyond our control and
we may be unable to meet it.
A breach of the covenants or restrictions under the documents that govern our indebtedness could result in an event of
default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in
the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default
under the credit agreement governing our 2018 Credit Facility would permit the lenders under our 2018 Credit Facility to terminate
all commitments to extend further credit under that facility. In the event our lenders or noteholders accelerate the repayment of
our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of there restrictions,
we may be:
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limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.
These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results, our
substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.
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We have incurred a substantial amount of indebtedness, which could restrict our ability to engage in additional transactions
or incur additional indebtedness.
During Fiscal 2019, we financed our acquisition of Versace with $1.6 billion in term loans under our 2018 Term Loan
Facility and $350 million under our $1.0 billion Revolving Credit Facility. As of March 30, 2019, our consolidated indebtedness
was approximately $2.6 billion, net of debt issuance costs and discount amortization. Our total borrowings as of March 30, 2019
included $539 million outstanding under our 2018 Revolving Credit Facility, senior notes of $450 million and term loans of $1.6
billion. As of March 30, 2019, we have the capacity to borrow up to $489 million of additional indebtedness under our undrawn
revolving credit facilities, which may be used to finance our working capital needs, capital expenditures, permitted investments,
share repurchases, dividends and other general corporate purposes. This substantial level of indebtedness could have important
consequences to our business including making it more difficult to satisfy our debt obligations, increasing our vulnerability to
general adverse economic and industry conditions, limiting our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate and restricting us from pursuing certain business opportunities. In addition, the terms of our
credit facility contain affirmative and negative covenants, including a leverage ratio, and the instruments governing our indebtedness
limit our ability to incur debt, grant liens, engage in mergers and dispose of assets. These consequences and limitations could
reduce the benefits we expect to achieve from the acquisition of Jimmy Choo or impede our ability to engage in future business
opportunities or strategic acquisitions.
Our ability to make payments on and to refinance our debt obligations and to fund planned capital expenditures depends
on our ability to generate cash from our operations. This, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient
cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make
payments of our debt, fund other liquidity needs and make planned capital expenditures. In addition, our ability to access the credit
and capital markets in the future as a source of funding, and the borrowing costs associated with such financing, is dependent upon
market conditions and our credit rating and outlook.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting,
which could harm our business and cause a decline in the price of our ordinary shares.
As a public company we are required to document and test our internal controls over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act. If our management is unable to certify the effectiveness of our internal controls or if our
independent registered public accounting firm cannot render an opinion on the effectiveness of our internal control over financial
reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss
of public confidence, which could have an adverse effect on our business and cause a decline in the price of our ordinary shares.
The integration of Versace into our internal control over financial reporting will require significant time and resources from
our management and other personnel and will increase our compliance costs. If we fail to successfully integrate these operations,
our internal control over financial reporting may not be effective. In addition, if Versace’s internal control over financial reporting
is found to be ineffective, the integrity of their past financial statements could be adversely impacted.
Provisions in our organizational documents may delay or prevent our acquisition by a third party.
Our Memorandum and Articles of Association (together, as amended from time to time, our “Memorandum and Articles”)
contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval
of our board of directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or
other transaction that might otherwise result in our shareholders receiving a premium over the market price for their ordinary
shares. These provisions include, among others:
•
•
•
•
•
our board of directors’ ability to amend the Memorandum and Articles to create and issue, from time to time, one or
more classes of preference shares and, with respect to each such class, to fix the terms thereof by resolution;
provisions relating to the multiple classes and three-year terms of directors, the manner of election of directors,
removal of directors and the appointment of directors upon an increase in the number of directors or vacancy on our
board of directors;
restrictions on the ability of shareholders to call meetings and bring proposals before meetings;
elimination of the ability of shareholders to act by written consent; and
the requirement of the affirmative vote of 75% of the shares entitled to vote to amend certain provisions of our
Memorandum and Articles.
24
These provisions of our Memorandum and Articles could discourage potential takeover attempts and reduce the price that
investors might be willing to pay for our ordinary shares in the future, which could reduce the market price of our ordinary shares.
Rights of shareholders under British Virgin Islands law differ from those under United States law, and, accordingly, our
shareholders may have fewer protections.
Our corporate affairs are governed by our Memorandum and Articles, the BVI Business Companies Act, 2004 (as amended,
the “BVI Act”) and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our
directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are
to a large extent governed by the common law of the British Virgin Islands and by the BVI Act. The common law of the British
Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English
common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders
and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be
under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less
developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed
and judicially interpreted bodies of corporate law. As a result of the foregoing, holders of our ordinary shares may have more
difficulty in protecting their interests through actions against our management, directors or major shareholders than they would
as shareholders of a U.S. company.
The laws of the British Virgin Islands provide limited protection for minority shareholders, so minority shareholders will have
limited or no recourse if they are dissatisfied with the conduct of our affairs.
Under the laws of the British Virgin Islands, there is limited statutory law for the protection of minority shareholders other
than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that
shareholders may bring an action to enforce the constituent documents of a British Virgin Islands company and are entitled to
have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association of
the company. As such, if those who control the company have persistently disregarded the requirements of the BVI Act or the
provisions of the company’s memorandum and articles of association, then the courts will likely grant relief. Generally, the areas
in which the courts will intervene are the following: (i) an act complained of which is outside the scope of the authorized business
or is illegal or not capable of ratification by the majority; (ii) acts that constitute fraud on the minority where the wrongdoers
control the company; (iii) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (iv) acts where
the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which
are more limited than the rights afforded to minority shareholders under the laws of many states in the United States.
It may be difficult to enforce judgments against us or our executive officers and directors in jurisdictions outside the United
States.
Under our Memorandum and Articles, we may indemnify and hold our directors harmless against all claims and suits
brought against them, subject to limited exceptions. Furthermore, to the extent allowed by law, the rights and obligations among
or between us, any of our current or former directors, officers and employees and any current or former shareholder will be governed
exclusively by the laws of the British Virgin Islands and subject to the jurisdiction of the British Virgin Islands courts, unless those
rights or obligations do not relate to or arise out of their capacities as such. Although there is doubt as to whether United States
courts would enforce these provisions in an action brought in the United States under United States securities laws, these provisions
could make judgments obtained outside of the British Virgin Islands more difficult to enforce against our assets in the British
Virgin Islands or jurisdictions that would apply British Virgin Islands law.
British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of
one avenue to protect their interests.
British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the
United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available
in respect of any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than
those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available
to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize
or enforce judgments of courts in the United States based on certain liability provisions of United States securities law or to impose
liabilities, in original actions brought in the British Virgin Islands, based on certain liability provisions of the United States securities
laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United
States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign
court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they
may not be able to recover anything to make up for the losses suffered.
25
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The following table sets forth the location, use and size of our significant distribution and corporate facilities as of March 30,
2019, all of which are leased with the exception of our distribution center in the Netherlands and our central warehouse in Italy,
which are owned. The leases expire at various times through Fiscal 2044, subject to renewal options.
Location
Whittier, CA
Michael Kors U.S. Distribution Center
Use
Venlo, Netherlands
Michael Kors European Distribution Center
New York, NY
Michael Kors and Jimmy Choo U.S. Corporate Offices
Montreal, Quebec
Michael Kors Canadian Corporate Office and Distribution Centers
Milan, Italy
Novara, Italy
Versace Corporate Offices
Versace European Distribution Center
East Rutherford, NJ
Novara, Italy
Michael Kors U.S. Corporate Offices
Versace Central Warehouse
Manno, Switzerland
Michael Kors European Corporate Offices
London, England
Jimmy Choo Corporate Offices
Secaucus, NJ
Michael Kors U.S. Distribution Center
London, England
New York, NY
Headquarters
Versace U.S. Corporate Offices
Michael Kors Regional Corporate Offices and Corporate
Approximate Square
Footage
1,284,420
1,096,330
262,450
150,440
129,460
108,810
53,480
45,700
25,830
23,950
22,760
21,650
21,340
As of March 30, 2019, we also occupied 1,249 leased retail stores worldwide (including concessions). We consider our
properties to be in good condition and believe that our facilities are adequate for our operations and provide sufficient capacity to
meet our anticipated requirements.
Other than the land and building for our Michael Kors European distribution center in the Netherlands and our Versace
central warehouse in Italy, fixed assets related to our stores (e.g. leasehold improvements, fixtures, etc.) and computer equipment,
we did not own any material property as of March 30, 2019.
Item 3. Legal Proceedings
We are involved in various routine legal proceedings incident to the ordinary course of our business. We believe that the
outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on our business, results of
operations and financial condition.
Item 4. Mine Safety Disclosures
None.
26
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Market Information
Our ordinary shares trade on the NYSE under the symbol “CPRI”. At March 29, 2019, there were 150,932,306 ordinary
shares outstanding, and the closing sale price of our ordinary shares was $45.75. Also as of that date, we had approximately 90
ordinary shareholders of record. The table below sets forth the high and low closing sale prices of our ordinary shares for the
periods indicated:
Fiscal 2019 Quarter Ended:
June 30, 2018
September 29, 2018
December 29, 2018
March 30, 2019
Fiscal 2018 Quarter Ended:
July 1, 2017
September 30, 2017
December 30, 2017
March 31, 2018
Share Performance Graph
High
Low
69.06
75.41
68.36
48.47
38.65
48.55
64.03
68.14
$
$
$
$
$
$
$
$
57.39
64.24
36.03
37.12
33.05
33.25
47.00
59.80
$
$
$
$
$
$
$
$
The line graph below compares the cumulative total shareholder return on our ordinary shares with the Standard & Poor’s
500 Index (GSPC), the S&P Retailing Index (RLX), and a peer group index of companies that we believe are closest to ours for
the five-year period from March 28, 2014 through March 29, 2019, the last business day of the our fiscal year. The peer group
index consists of the following companies: Tapestry, Inc., Guess?, Inc., PVH Corp., L Brands, Inc., Ralph Lauren Corporation,
Tiffany & Co. and VF Corporation. The graph below assumes that an investment of $100 made at the closing of trading on March
28, 2014, in (i) our ordinary shares, (ii) the shares comprising the GSPC, (iii) the shares comprising the RLX and (iv) the shares
comprising our peer group index. All values assume reinvestment of the full amount of all dividends, if any, into additional shares
of the same class of equity securities at the frequency with which dividends are paid on such securities during the applicable time
period.
27
Issuer Purchases of Equity Securities
Our share repurchases are made under our $1.0 billion share repurchase program, which expired on May 25, 2019. We also
have in place a “withhold to cover” repurchase program, which allows us to withhold ordinary shares from certain executive
officers and directors to satisfy minimum tax withholding obligations relating to the vesting of their restricted share awards.
The following table provides information regarding our ordinary share repurchases during the three months ended March 30,
2019:
Total Number
of Shares
Purchased
Average
Price Paid
per Share
—
— $
— $
— $
—
—
—
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number (or
Approximated Dollar Value)
of Shares (or Units) That
May Yet Be Purchased
Under the Plans or Programs (in
millions)
— $
— $
— $
—
442
442
442
December 30 – January 26
January 27 – February 23
February 24 – March 30
Item 6.
Selected Financial Data
The following table sets forth selected historical consolidated financial and other data for Capri Holdings Limited and its
consolidated subsidiaries for the periods presented. The statements of operations data for Fiscal 2019, Fiscal 2018 and Fiscal
2017 and the balance sheet data as of the end of Fiscal 2019 and Fiscal 2018 have been derived from our audited consolidated
financial statements included elsewhere in this report. The statements of operations data for Fiscal 2016 and Fiscal 2015 and the
balance sheet data as of the end of Fiscal 2017, Fiscal 2016 and Fiscal 2015 have been derived from our prior audited consolidated
financial statements, which are not included in this report.
The selected historical consolidated financial data below should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included
elsewhere in this annual report.
28
Statement of Operations Data:
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Restructuring and other charges (2)
Total operating expenses
Income from operations
Other income
Interest expense, net
Foreign currency loss (gain)
Income before provision for income taxes
Provision for income taxes
Net income
Less: Net loss attributable to noncontrolling interests
Net income attributable to Capri
Weighted average ordinary shares outstanding:
Basic
Diluted
Net income per ordinary share(3):
Basic
Diluted
$
$
$
$
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
April 2,
2016 (1)
March 28,
2015
(data presented in millions, except for shares and per share data)
$
5,238
2,058
3,180
2,075
225
21
124
2,445
735
(4)
38
80
621
79
542
(1)
$
4,719
1,860
2,859
1,767
208
33
102
2,110
749
(2)
22
(13)
742
150
592
—
$
4,494
1,833
2,661
1,541
220
199
11
1,971
690
(6)
4
3
689
137
552
(1)
$
4,712
1,915
2,797
1,428
183
11
—
1,622
1,175
(4)
2
5
1,172
334
838
(1)
543
$
592
$
553
$
839
$
4,372
1,724
2,648
1,252
138
1
—
1,391
1,257
(2)
—
3
1,256
375
881
—
881
149,765,468
151,614,350
152,283,586
155,102,885
165,986,733
168,123,813
186,293,295
189,054,289
202,680,572
205,865,769
3.62
3.58
$
$
3.89
3.82
$
$
3.33
3.29
$
$
4.50
4.44
$
$
4.35
4.28
(1)
(2)
(3)
Fiscal year ended April 2, 2016 contained 53 weeks, whereas all other fiscal years presented are based on 52-week periods.
Restructuring and other charges includes store closure costs recorded in connection with the Michael Kors Retail Fleet Optimization
Plan and other restructuring initiatives, and transaction and transition costs recorded in connection with the acquisitions of Versace,
Jimmy Choo and Michael Kors (HK) Limited and Subsidiaries (see Note 10 to the accompanying audited consolidated financial
statements).
Basic net income per ordinary share is computed by dividing net income available to ordinary shareholders of Capri by basic weighted
average ordinary shares outstanding. Diluted net income per ordinary share is computed by dividing net income attributable to ordinary
shareholders of Capri by diluted weighted average ordinary shares outstanding.
Operating Data:
Retail stores, including concessions, end of period
1,249
1,011
827
668
526
March 30,
2019
Fiscal Years Ended
April 1,
2017
(data presented in millions, except for share and store data)
March 31,
2018
April 2,
2016 (1)
March 28,
2015
Balance Sheet Data:
Working capital
Total assets
Short-term debt
Long-term debt
Shareholders’ equity of Capri
Number of ordinary shares issued
$
$
$
$
$
187
6,650
630
1,936
2,429
216,050,939
$
$
$
$
$
302
4,059
200
675
2,018
210,991,091
$
$
$
$
$
599
2,410
133
$
$
$
— $
$
1,593
209,332,493
1,234
2,567
$
$
— $
$
$
2
1,996
208,084,175
1,663
2,685
—
—
2,241
206,486,699
(1)
Fiscal year ended April 2, 2016 contained 53 weeks, whereas all other fiscal years presented are based on 52-week periods. All comparable
store sales are presented on a 52-week basis.
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the consolidated financial statements and notes thereto included as part of this Annual Report on Form 10-K.
This discussion contains forward-looking statements that are based upon current expectations. We sometimes identify forward-
looking statements with such words as “may,” “expect,” “anticipate,” “estimate,” “seek,” “intend,” “believe” or similar words
concerning future events. The forward-looking statements contained herein include, without limitation, statements concerning our
ability to execute on our future growth strategies, our ability to achieve intended benefits from acquisitions, future revenue sources
and concentration, gross profit margins, selling and marketing expenses, capital expenditures, general and administrative expenses,
capital resources, new stores, Retail Fleet Optimization Plan and anticipated cost savings, share buybacks, additional financings
or borrowings and additional losses and future prospects of the Company, and are subject to risks and uncertainties including,
but not limited to, those discussed in this report that could cause actual results to differ materially from the results contemplated
by these forward-looking statements. We also urge you to carefully review the risk factors set forth in “Item 1A. – Risk Factors.”
Overview
Our Business
Capri Holdings Limited is a global fashion luxury group, consisting of iconic brands that are industry leaders in design,
style and craftsmanship, led by a world-class management team and renowned designers. Our brands cover the full spectrum of
fashion luxury categories including women’s and men’s accessories, footwear and ready-to-wear as well as wearable technology,
watches, jewelry, eyewear and a full line of fragrance products. Our goal is to continue to extend the global reach of our brands
while ensuring that they maintain their independence and exclusive DNA.
On December 31, 2018, we completed the acquisitions of Gianni Versace S.r.l. (“Versace”). Versace has long been recognized
as one of the world’s leading international fashion design houses and is synonymous with Italian glamour and style. Founded in
1978 in Milan, Versace is known for its iconic and unmistakable style and unparalleled craftsmanship, over the past several decades
the House of Versace has grown globally from its roots in haute couture, expanding into the design, manufacturing, distribution
and retailing of ready-to-wear, accessories, footwear, eyewear, watches, jewelry, fragrance and home furnishings businesses.
Versace’s design team is led by Donatella Versace, who has been the brand’s artistic director for over 20 years. Versace distributes
its products through a worldwide distribution network, which includes boutiques in some of the world’s most glamorous cities,
its e-commerce site, as well as through the most prestigious department and specialty stores worldwide.
On November 1, 2017, we completed the acquisition of Jimmy Choo Group Limited and its subsidiaries (collectively,
“Jimmy Choo”). Jimmy Choo offers a distinctive, glamorous and fashion-forward product range, enabling it to develop into a
leading global luxury accessories brand, whose core product offering is women’s luxury shoes, complemented by accessories,
including handbags, small leather goods, scarves and belts, as well as a growing men’s luxury shoes and accessory business. In
addition, certain categories, such as fragrances, sunglasses and eyewear are produced under licensing agreements. Jimmy Choo's
design team is led by Sandra Choi, who has been the Creative Director for the brand since its inception in 1996. Jimmy Choo
products are unique, instinctively seductive and chic. The brand offers classic and timeless luxury products, as well as innovative
products that are intended to set and lead fashion trends. Jimmy Choo is represented through its global store network, its e-
commerce sites, as well as through the most prestigious department and specialty stores worldwide.
The Michael Kors brand was launched over 35 years ago by Michael Kors, whose vision has taken the Company from its
beginnings as an American luxury sportswear house to a global accessories, footwear and apparel company with a global distribution
network that has presence in over 100 countries through Company-operated retail stores and e-commerce sites, leading department
stores, specialty stores and select licensing partners. Michael Kors is a highly recognized luxury fashion brand in the Americas
and Europe with growing brand awareness in other international markets. Michael Kors features distinctive designs, materials and
craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. Michael Kors offers three primary
collections: the Michael Kors Collection luxury line, the MICHAEL Michael Kors accessible luxury line and the Michael Kors
Mens line. The Michael Kors Collection establishes the aesthetic authority of the entire brand and is carried by many of our retail
stores, our e-commerce sites, as well as in the finest luxury department stores in the world. MICHAEL Michael Kors has a strong
focus on accessories, in addition to offering footwear and apparel, and addresses the significant demand opportunity in accessible
luxury goods.We have also been developing our men’s business in recognition of the significant opportunity afforded by the
Michael Kors brand’s established fashion authority and the expanding men’s market. Taken together, our Michael Kors collections
target a broad customer base while retaining our premium luxury image.
30
Certain Factors Affecting Financial Condition and Results of Operations
Establishing brand identity and enhancing global presence. We intend to grow our international presence through our global
fashion luxury group, bringing together industry-leading fashion luxury brands.
As mentioned above, on November 1, 2017, we acquired Jimmy Choo for a total transaction value of $1.447 billion. Jimmy
Choo has a rich history as a leading global luxury house, renowned for its glamorous and fashion-forward footwear, and is an
excellent complement to the Michael Kors brand. In addition, on December 31, 2018 we completed the acquisition of Versace,
which is one of the leading international fashion design houses and a symbol of Italian luxury worldwide, for an aggregate purchase
price of approximately $2.005 billion, including an equity investment made by the Versace family at acquisition. We believe that
these combinations significantly strengthen our future growth opportunities, while also increasing both product and geographic
diversification. However, there are risks associated with new acquisitions and the anticipated benefits of acquisitions on our
financial results may not be in line with our expectations.
We also intend to continue to increase our international presence and global brand recognition by growing our existing
international operations, through acquisitions, the formation of various joint ventures with international partners and continuing
with our international licensing arrangements. We feel this is an efficient method for continued penetration into the global luxury
goods market, especially for markets where we have yet to establish a substantial presence. In addition, our growth strategy includes
assuming direct control of certain licensed international operations to better manage our growth opportunities in the related regions.
See Note 4 to the accompanying consolidated financial statements for additional information regarding our recent
acquisitions.
Channel Shift and Demand for Our Accessories and Related Merchandise. Our performance is affected by trends in the
luxury goods industry, as well as shifts in demographics and changes in lifestyle preferences. Although the overall consumer
spending for personal luxury products has recently increased, consumer shopping preferences have continued to shift from physical
stores to on-line shopping. We currently expect that this trend will continue in the foreseeable future. We continue to adjust our
operating strategy to the changing business environment. We have made significant progress toward our previously announced
plan to close between 100 and 125 of our Michael Kors retail stores at an expected total one-time cost of approximately $100 -
$125 million, in order to improve the profitability of our Michael Kors retail store fleet. As of March 30, 2019, we closed at total
of 100 stores and recorded restructuring charges of $41 million and $53 million in Fiscal 2019 and Fiscal 2018, respectively. We
anticipate finalizing the remainder of the planned store closures under the Retail Fleet Optimization Plan by the end of Fiscal
2020. Collectively, we continue to anticipate ongoing annual savings of approximately $60 million as a result of the store closures
and lower depreciation and amortization associated with the impairment charges recorded once these initiatives are completed.
Foreign currency fluctuation. Our consolidated operations are impacted by the relationships between our reporting currency,
the U.S. dollar, and those of our non-U.S. subsidiaries whose functional/local currency is other than the U.S. dollar, particularly
the Euro, the British Pound, the Chinese Renminbi, the Japanese Yen, the Korean Won and the Canadian Dollar, among others.
We continue to expect volatility in the global foreign currency exchange rates, which may have a negative impact on the reported
results of certain of our non-U.S. subsidiaries in the future, when translated to U.S. Dollars.
Disruptions in shipping and distribution. Our operations are subject to the impact of shipping disruptions as a result of
changes or damage to our distribution infrastructure, as well as due to external factors. Any future disruptions in our shipping and
distribution network could have a negative impact on our results of operations.
Costs of Manufacturing and Tariffs. Our industry is subject to volatility in costs related to certain raw materials used in the
manufacturing of our products. This volatility applies primarily to costs driven by commodity prices, which can increase or decrease
dramatically over a short period of time. In addition, our costs may be impacted by tariffs imposed on our products and increased
duties due to changes in trade terms. On May 10, 2019, the U.S. increased the tariff rate from 10% to 25% on $200 million of
imports of select product categories from China. President Trump also announced the potential to expand these tariffs to cover all
products entering the U.S. from China including ready-to-wear, footwear and men’s products. If the U.S. follows through on its
further proposed China tariffs, or if additional tariffs or trade restrictions are implemented by other countries, the cost of our
products could increase which could adversely affect our business. These factors may have a material impact on our revenues,
results of operations and cash flows to the extent they occur. We use commercially reasonable efforts to mitigate these effects by
sourcing our products as efficiently as possible. In addition, manufacturing labor costs are also subject to degrees of volatility
based on local and global economic conditions. We use commercially reasonable efforts to source from localities that suit our
manufacturing standards and result in more favorable labor driven costs to our products.
31
U.S. Tax Reform. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred
to as the Tax Cuts and Jobs Act. The Tax Act includes significant changes to the U.S. corporate income tax system including,
among other things, lowering U.S. statutory federal tax rate and implementing a territorial tax system. The U.S. statutory federal
tax rate has been decreased to 21% for Fiscal 2019 and thereafter. The Tax Act also added many new provisions, including changes
to bonus depreciation, limits on the deductions for executive compensation and interest expense, a tax on global intangible low-
taxed income, the base erosion anti-abuse tax and a deduction for foreign derived intangible income.
In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 to provide guidance for
companies that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the
recording of the related tax impacts. Subsequently, as a result of finalizing its full Fiscal 2018 operating results, the issuance of
new interpretive guidance, and other analyses performed, the Company finalized its accounting related to the impacts of the Tax
Act and recorded immaterial measurement period adjustments in Fiscal 2019.
Segment Information
Prior to the fourth quarter of Fiscal 2019, we organized our business into four reportable segments: MK Retail, MK
Wholesale, MK Licensing and Jimmy Choo. As a result of our acquisition of Versace, effective beginning in the fourth quarter of
Fiscal 2019, we realigned our reportable segments according to the new structure of our business. As a result, we now operate in
three reportable segments, which are as follows:
Versace
The Versace business was acquired and consolidated beginning on December 31, 2018. We generate revenue through the
sale of Versace luxury ready-to-wear, accessories, footwear and home furnishings through directly operated Versace boutiques
throughout North America (United States and Canada), EMEA (Europe, Middle East and Africa) and certain parts of Asia, as well
as through Versace outlet stores and e-commerce sites. In addition, revenue is generated through wholesale sales to distribution
partners (including geographic licensing arrangements), multi-brand department stores and specialty stores worldwide, as well as
through product license agreements in connection with the manufacturing and sale of jeans, fragrances, watches, jewelry and
eyewear.
Jimmy Choo
The Jimmy Choo business was acquired and consolidated beginning on November 1, 2017. We generate revenue through
the sale of Jimmy Choo luxury goods to end clients through directly operated Jimmy Choo stores throughout the Americas (United
States, Canada and Latin America), EMEA and certain parts of Asia, through our e-commerce sites, as well as through wholesale
sales of luxury goods to distribution partners (including geographic licensing arrangements that allow third parties to use the
Jimmy Choo tradename in connection with retail and/or wholesale sales of Jimmy Choo branded products in specific geographic
regions), multi-brand department stores and specialty stores worldwide. In addition, revenue is generated through product licensing
agreements, which allow third parties to use the Jimmy Choo brand name and trademarks in connection with the manufacturing
and sale of fragrances, sunglasses and eyewear.
Michael Kors
The Michael Kors brand was launched over 35 years ago and is the foundation to our global fashion luxury group. We
generate sales of Michael Kors products through four primary Michael Kors retail store formats: “Collection” stores, “Lifestyle”
stores (including concessions), outlet stores and e-commerce, through which we sell our products, as well as licensed products
bearing our name, directly to the end consumer throughout the Americas, Europe and certain parts of Asia. Our Michael Kors e-
commerce business includes e-commerce sites in the U.S., Canada, certain parts of Europe, China, South Korea and Japan. We
also sell Michael Kors products directly to department stores, primarily located across the Americas and Europe, to specialty stores
and travel retail shops in the Americas, Europe and Asia, and to our geographic licensees in certain parts of EMEA, Asia and
Brazil. In addition, revenue is generated through product and geographic licensing arrangements, which allow third parties to use
the Michael Kors brand name and trademarks in connection with the manufacturing and sale of products, including watches,
jewelry, fragrances and beauty, and eyewear, as well as through geographic licensing arrangements, which allow third parties to
use the Michael Kors tradename in connection with the retail and/or wholesale sales of our Michael Kors branded products in
specific geographic regions, such as Brazil, the Middle East, South Africa, Eastern Europe, certain parts of Asia and Australia.
32
Unallocated Expenses
In addition to the reportable segments discussed above, we have certain corporate costs that are not directly attributable to
our brands and, therefore, are not allocated to segments. Such costs primarily include certain administrative, corporate occupancy,
information systems expenses, including Enterprise Resource Planning (“ERP”) system implementation costs. In addition, certain
other costs are not allocated to segments, including restructuring and other charges (including transaction and transition costs
related to our recent acquisitions) and impairment costs. The new segment structure is consistent with how we plan and allocate
resources, manage our business and assess our performance. All prior period segment information has been recast to reflect the
realignment of our segment reporting structure on a comparable basis. The following table presents our total revenue and income
from operations by segment for Fiscal 2019, Fiscal 2018 and Fiscal 2017 (in millions):
Total revenue:
Versace
Jimmy Choo
Michael Kors
Total revenue
Income (loss) from operations:
Versace
Jimmy Choo
Michael Kors
Total segment income from operations
Less: Corporate expenses
Restructuring and other charges
Impairment of long-lived assets
Total income from operations
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
$
$
$
$
137
590
4,511
$
— $
223
4,496
5,238
$
4,719
$
(11) $
20
964
973
(93)
(124)
(21)
735
$
— $
(4)
975
971
(87)
(102)
(33)
749
$
—
—
4,494
4,494
—
—
979
979
(79)
(11)
(199)
690
33
The following table presents our global network of retail stores and wholesale doors:
Number of full price retail stores (including concessions):
March 30,
2019
As of
March 31,
2018
April 1,
2017
Versace
Jimmy Choo
Michael Kors
Number of outlet stores:
Versace
Jimmy Choo
Michael Kors
146
169
587
902
42
39
266
347
—
158
596
754
—
24
233
257
Total number of retail stores
1,249
1,011
Total number of wholesale doors:
Versace
Jimmy Choo
Michael Kors
1,028
596
3,202
4,826
—
629
3,544
4,173
The following table presents our retail stores by geographic location:
—
—
614
614
—
—
213
213
827
—
—
3,607
3,607
Store count by region:
The Americas
EMEA
Asia
As of
March 30, 2019
As of
March 31, 2018
Versace
Jimmy Choo
Michael
Kors
Jimmy Choo
Michael
Kors
28
53
107
188
43
71
94
208
390
186
277
853
38
62
82
182
379
198
252
829
Key Performance Indicators and Statistics
We use a number of key indicators of operating results to evaluate our performance, including the following (dollars in
millions):
Total revenue
Gross profit as a percent of total revenue
Income from operations
Income from operations as a percent of total revenue
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
$
$
$
$
5,238
60.7 %
735
14.0 %
$
$
4,719
60.6 %
749
15.9 %
4,494
59.2 %
690
15.4 %
34
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
(“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue
and expenses during the reporting period. Critical accounting policies are those that are the most important to the portrayal of our
results of operations and financial condition and that require our most difficult, subjective and complex judgments to make estimates
about the effect of matters that are inherently uncertain. In applying such policies, we must use certain assumptions that are based
on our informed judgments, assessments of probability and best estimates. Estimates, by their nature, are subjective and are based
on analysis of available information, including current and historical factors and the experience and judgment of management.
We evaluate our assumptions and estimates on an ongoing basis. During the first quarter of Fiscal 2019, we adopted the new
accounting guidance related to revenue recognition, as described in Note 2 and Note 3 to the accompanying consolidated financial
statements. Under this guidance, the timing of revenue recognition for royalty and advertising revenue under certain of our licensing
agreements may shift among fiscal quarters. In addition, we eliminated a one-month reporting lag for one of our licensees, and
began to recognize revenue for the unredeemed portion of our gift cards that are not required to be remitted as unclaimed property
proportionally over the estimated customer redemption period.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that
reflects the consideration we expect to be entitled to in exchange for goods or services. We recognize retail store revenue when
control of the product is transferred at the point of sale at our owned stores, including concessions. Revenue from sales through
our e-commerce sites is recognized at the time of delivery to the customer, reduced by an estimate of returns. Wholesale revenue
is recognized net of estimates for sales returns, discounts, markdowns and allowances, after merchandise is shipped and control
of the underlying product is transferred to our wholesale customers. To arrive at net sales for retail, gross sales are reduced by
actual customer returns, as well as by a provision for estimated future customer returns, which is based on management’s review
of historical and current customer returns. The amounts reserved for retail sales returns were $15 million, $12 million and $7
million at March 30, 2019, March 31, 2018 and April 1, 2017, respectively. Net sales for wholesale equals gross sales, reduced
by provisions for estimated future returns based on current expectations, as well as trade discounts, markdowns, allowances,
operational chargebacks, and certain cooperative selling expenses. Total sales reserves for wholesale were $112 million, $109
million and $97 million at March 30, 2019, March 31, 2018 and April 1, 2017, respectively. These estimates are based on such
factors as historical trends, actual and forecasted performance, and market conditions, which are reviewed by management on a
quarterly basis. Our historical estimates of these costs were not materially different from actual results.
Royalty revenue generated from product licenses, which includes contributions for advertising, is based on reported sales
of licensed products bearing our tradenames at rates specified in the license agreements. These agreements are also subject to
contractual minimum levels. Royalty revenue generated by geographic licensing agreements is recognized as it is earned under
the licensing agreements based on reported sales of licensees applicable to specified periods, as outlined in the agreements. These
agreements allow for the use of our tradenames to sell our branded products in specific geographic regions.
During Fiscal 2018, we launched our Michael Kors customer loyalty program, which allows customers to earn points on
qualifying purchases toward monetary and non-monetary rewards , which may be redeemed for purchases at our retail stores and
e-commerce sites. We allocate a portion of the initial sales transaction based on the estimated relative fair value of the benefits(cid:3)
based on projected timing of future redemptions and historical activity. These amounts include estimated “breakage” for points(cid:3)
that are not expected to be redeemed. The contract liability, net of an estimated “breakage,” is recorded as a reduction to revenue(cid:3)
in the consolidated statements of income and comprehensive income. Our breakage and other assumptions used to determine the(cid:3)
estimated fair value of benefits are estimates, which could vary significantly from actual benefits that will be redeemed in the(cid:3)
future.
Inventories
Our inventory costs include amounts paid to independent manufacturers, plus duties and freight to bring the goods to the
Company’s warehouses, which are located in the United States, Italy, United Kingdom, the Netherlands, Canada, China, Hong
Kong, Japan, South Korea, Switzerland, Taiwan and the United Arab Emirates. We continuously evaluate the composition of our
inventory and make adjustments when the cost of inventory is not expected to be fully recoverable. The net realizable value of
our inventory is estimated based on historical experience, current and forecasted demand and market conditions. In addition,
reserves for inventory losses are estimated based on historical experience and inventory counts. Our inventory reserves are estimates,
which could vary significantly from actual results if future economic conditions, customer demand or competition differ from
expectations. Our historical estimates of these adjustments have not differed materially from actual results.
35
Long-lived Assets
We evaluate all long-lived assets, including fixed assets and definite-lived intangible assets, for impairment whenever events
or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. For the purposes of
impairment testing, we group our long-lived assets according to their lowest level of use, such as aggregating and capitalizing all
construction costs related to a retail store into leasehold improvements and those related to our wholesale business into shop-in-
shops. Our leasehold improvements are typically amortized over the life of the store lease, including highly probable renewals,
and our shop-in-shops are amortized over a useful life of three or four years. Our impairment testing is based on our best estimate
of the future operating cash flows. If the sum of our estimated undiscounted future cash flows associated with the asset is less than
the asset’s carrying value, we recognize an impairment charge, which is measured as the amount by which the carrying value
exceeds the fair value of the asset. These estimates of future cash flows require significant management judgment and certain
assumptions about future volume, sales and expense growth rates, devaluation and inflation. As such, these estimates may differ
from actual cash flows and future impairments may result if actual cash flows are lower than our expectations. During Fiscal 2019,
Fiscal 2018 and Fiscal 2017, we recorded impairment charges of $21 million, $33 million and $199 million, respectively, primarily
related to fixed assets and lease rights for underperforming Michael Kors retail stores. Fiscal 2019 amount also included impairment
charges of $4 million related to Jimmy Choo retail store locations. Please refer to Note 7, Note 8 and Note 13 to the accompanying
consolidated audited financial statements for additional information.
Goodwill and Other Indefinite-lived Intangible Assets
We record intangible assets based on their fair value on the date of acquisition. Goodwill is recorded for the difference
between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible assets acquired.
The brand intangible assets recorded in connection with the acquisitions of Versace and Jimmy Choo were determined to be an
indefinite-lived intangible assets, which are not subject to amortization. We perform an impairment assessment of goodwill, as
well as the Versace brand and Jimmy Choo brand intangible assets on an annual basis, or whenever impairment indicators exist.
In the absence of any impairment indicators, goodwill, the Versace brand and the Jimmy Choo brand are assessed for impairment
during the fourth quarter of each fiscal year. Judgments regarding the existence of impairment indicators are based on market
conditions and operational performance of the business.
We may assess our goodwill and our brand indefinite-lived intangible assets for impairment initially using a qualitative
approach to determine whether it is more likely than not that the fair value of these assets is greater than their carrying value.
When performing a qualitative test, we assess various factors including industry and market conditions, macroeconomic conditions
and performance of our businesses. If the results of the qualitative assessment indicate that it is more likely than not that our
goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis would be performed to
determine if impairment is required. We may also elect to perform a quantitative analysis of goodwill and our indefinite-lived
intangible assets initially rather than using a qualitative approach.
The impairment testing for goodwill is performed at the reporting unit level. The valuation methods used in the quantitative
fair value assessment, discounted cash flow and market multiples method, require our management to make certain assumptions
and estimates regarding certain industry trends and future profitability of our reporting units. If the fair value of a reporting unit
exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no further testing is performed.
If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the difference. The valuation of
goodwill is affected by, among other things, our business plan for the future and estimated results of future operations. Future
events could cause us to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.
When performing a quantitative impairment assessment of our brand indefinite-lived intangible assets, the fair value of the
Versace and the Jimmy Choo brands is estimated using a discounted cash flow analysis based on the "relief from royalty" method,
assuming that a third party would be willing to pay a royalty in lieu of ownership for this intangible asset. This approach is
dependent on many factors, including estimates of future growth, royalty rates, and discount rates. Actual future results may differ
from these estimates. Impairment loss is recognized when the estimated fair value of the indefinite-lived brand intangible assets
is less than its carrying amount.
36
During the fourth quarter of Fiscal 2019, we performed our annual goodwill and indefinite-lived intangible assets impairment
analysis for our three brands. The impairment analysis relating to the Versace goodwill and brand were performed using a qualitative
approach due to the proximity to the acquisition date and it was concluded that it is more likely than not that the fair value of
goodwill and brand exceeded their respective carrying values and, therefore, did not result in impairment. We also performed our
goodwill impairment assessment for the Michael Kors brand using a qualitative approach. As a result of realigning our segment
reporting structure during the fourth quarter of Fiscal 2019, we presented the carrying amount of goodwill of MK Retail, MK
Wholesale and MK Licensing within the Michael Kors reportable segment (see Note 8 to the accompanying consolidated financial
statements for additional information). Based on the results of our qualitative impairment assessment, we concluded that it is more
likely than not that the fair value of the Michael Kors’ reporting units exceeded their carrying value and, therefore, was not impaired.
We elected to perform our annual goodwill and brand impairment analysis for Jimmy Choo brand using a quantitative approach,
using discounted cash flow analysis to estimate the fair values of the Jimmy Choo reporting units, as described above. Based on
the results of these assessments, we concluded that the fair values of the Jimmy Choo reporting units and the brand indefinite-
lived intangible asset exceeded the related carrying amounts and there were no reporting units at risk of impairment. See Note 8
to the accompanying audited financial statements for information relating to our annual impairment analysis performed during
the fourth quarter of Fiscal 2019. There were no impairment charges related to goodwill or indefinite-lived intangible assets in
any of the fiscal periods presented.
Share-based Compensation
We grant share-based awards to certain of our employees and directors. The grant date fair value of share options is calculated
using the Black-Scholes option pricing model, which requires us to use subjective assumptions. The closing market price at the
grant date is used to determine the grant date fair value of restricted shares, restricted share units (“RSUs”) and performance-based
RSUs. These values are recognized as expense over the requisite service period, net of estimated forfeitures, based on expected
attainment of pre-established performance goals for performance grants, or the passage of time for those grants which have only
time-based vesting requirements. Compensation expense for performance-based RSUs is recognized over the employees' requisite
service period when attainment of the performance goals is deemed probable, which involves judgment as to achievement of
certain performance metrics.
Beginning in Fiscal 2018, we began using our own historical experience in determining the expected holding period and
volatility of our time-based share option awards. Prior to Fiscal 2018, we used the simplified method for determining the expected
life of our options and average volatility rates of similar actively traded companies over the estimated holding period, due to
insufficient historical option exercise experience as a public company. Determining the grant date fair value of share-based awards
requires considerable judgment, including estimating expected volatility, expected term, risk-free rate, and forfeitures. If factors
change and we employ different assumptions, the fair value of future awards and resulting share-based compensation expense
may differ significantly from what we have estimated in the past.
Derivative Financial Instruments
Forward Foreign Currency Exchange Contracts
We use forward currency exchange contracts to manage our exposure to fluctuations in foreign currency for certain of our
transactions. We are exposed to risks on certain purchase commitments to foreign suppliers based on the value of our purchasing
subsidiaries’ local currency relative to the currency requirement of the supplier on the date of the commitment. As such, we enter
into forward currency contracts that generally mature in 12 months or less, which is consistent with the related purchase
commitments. We designate certain contracts related to the purchase of inventory that qualify for hedge accounting as cash flow
hedges. All of our derivative instruments are recorded in our consolidated balance sheets at fair value on a gross basis, regardless
of their hedge designation. The effective portion of changes in the fair value for contracts designated as cash flow hedges is recorded
in equity as a component of accumulated other comprehensive income (loss) until the hedged item effects earnings. When the
inventory related to forecasted inventory purchases that are being hedged is sold to a third party, the gains or losses deferred in
accumulated other comprehensive income (loss) are recognized within cost of goods sold. We use regression analysis to assess
effectiveness of derivative instruments that are designated as hedges, which compares the change in the fair value of the derivative
instrument to the change in the related hedged item. Effectiveness is assessed on a quarterly basis and any portion of the designated
hedge contracts deemed ineffective is recorded to foreign currency gain (loss). If the hedge is no longer expected to be highly
effective in the future, future changes in the fair value are recognized in earnings. For those contracts that are not designated as
hedges, changes in the fair value are recorded in foreign currency gain (loss) in our consolidated statements of operations.
37
Net Investment Hedges
We also use fixed-to-fixed cross currency swap agreements to hedge our net investments in foreign operations against future
volatility in the exchange rates between its U.S. Dollars and these foreign currencies. We have elected the spot method of designating
these contracts under ASU 2017-12, as defined in Note 2 to the accompanying consolidated financial statements, and have
designated these contracts as net investment hedges. The net gain or loss on net investment hedges is reported within foreign
currency translation gains and losses (“CTA”), as a component of accumulated other comprehensive income (loss) on our
consolidated balance sheets. Interest accruals and coupon payments are recognized directly in interest expense in our statement
of operations and comprehensive income. Upon discontinuation of a hedge, all previously recognized amounts remain in CTA
until the hedged net investment is sold, diluted, or liquidated.
We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. In order
to mitigate counterparty credit risk, we only enter into contracts with carefully selected financial institutions based upon their
credit ratings and certain other financial factors, adhering to established limits for credit exposure.
Income Taxes
Deferred income tax assets and liabilities reflect temporary differences between the tax basis and financial reporting basis
of our assets and liabilities and are determined using the tax rates and laws in effect for the periods in which the differences are
expected to reverse. We periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities,
based on the results of local, state, federal or foreign statutory tax audits or our own estimates and judgments.
Realization of deferred tax assets associated with net operating loss and tax credit carryforwards is dependent upon generating
sufficient taxable income prior to their expiration in the applicable tax jurisdiction. We periodically review the recoverability of
our deferred tax assets and provide valuation allowances as deemed necessary to reduce deferred tax assets to amounts that more-
likely-than-not will be realized. This determination involves considerable judgment and our management considers many factors
when assessing the likelihood of future realization of deferred tax assets, including recent earnings results within various taxing
jurisdictions, expectations of future taxable income, the carryforward periods remaining and other factors. Changes in the required
valuation allowance are recorded in income in the period such determination is made. Deferred tax assets could be reduced in the
future if our estimates of taxable income during the carryforward period are significantly reduced or alternative tax strategies are
no longer viable.
We recognize the impact of an uncertain income tax position taken on our income tax returns at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing authority. The effect of an uncertain income tax position
will not be taken into account if the position has less than a 50% likelihood of being sustained. Our tax positions are analyzed
periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments for those positions. We record
interest expense and penalties payable to relevant tax authorities as income tax expense.
New Accounting Pronouncements
Please refer to Note 2 to the accompanying consolidated financial statements for detailed information relating to recently
adopted and recently issued accounting pronouncements and the associated impacts.
General Definitions for Operating Results
Total revenue consists of sales from comparable retail stores and e-commerce sites and non-comparable retail stores and
e-commerce sites, net of returns and markdowns, as well as those made to our wholesale customers, net of returns, discounts,(cid:3)
markdowns and allowances. Additionally, revenue includes royalties and other contributions earned on sales of licensed products(cid:3)
by our licensees as well as contractual royalty rates for the use of our trademarks in certain geographic territories.
Comparable store sales include sales from a retail store or an e-commerce site that has been operating for one full year
after the end of the first month of its operation under our ownership. For stores that are closed, sales that were made in the final
month of their operations (assuming closure prior to the fiscal month’s end), are excluded from the calculation of comparable store
sales. Additionally, sales for stores that are either relocated, or expanded by a square footage of 25% or greater, in any given fiscal
year, are also excluded from the calculation of comparable store sales at the time of their move or interruption, until such stores
have been in their new location, or are operating under their new size/capacity, for at least one full year after the end of the first
month of their relocation or expansion. All comparable store sales are presented on a 52-week basis. Comparable store sales are
reported on a global basis, which represents management’s view of our Company as an expanding global business.
38
Constant currency effects are non-U.S. GAAP financial measures, which are provided to supplement our reported operating
results to facilitate comparisons of our operating results and trends in our business, excluding the effects of foreign currency rate
fluctuations. Because we are a global company, foreign currency exchange rates may have a significant effect on our reported
results. We calculate constant currency measures and the related foreign currency impacts by translating the current-year’s reported
amounts into comparable amounts using prior year’s foreign exchange rates for each currency. All constant currency performance
measures discussed below should be considered a supplement to and not in lieu of our operating performance measures calculated
in accordance with U.S. GAAP.
Cost of goods sold includes the cost of inventory sold, freight-in on merchandise and foreign currency exchange gains/
losses related to designated forward contracts for purchase commitments. All retail operating and occupancy costs are included
in Selling, general and administrative expenses (see below) and, as a result, our cost of goods sold may not be comparable to that
of other entities that have chosen to include some or all of those expenses as a component of their cost of goods sold.
Gross profit is total revenue minus cost of goods sold. As a result of retail operating and occupancy costs being excluded
from our cost of goods sold, our gross profit may not be comparable to that of other entities that have chosen to include some or
all of those expenses as a component of their gross profit.
Selling, general and administrative expenses consist of warehousing and distribution costs, rent for our distribution centers,
payroll, store occupancy costs (such as rent, common area maintenance, store pre-opening, real estate taxes and utilities),
information technology and systems costs, corporate payroll and related benefits, advertising and promotion expense and other
general expenses.
Depreciation and amortization includes depreciation and amortization of fixed assets and definite-lived intangible assets.
Impairment of long-lived assets consists of charges to write-down fixed assets and finite-lived intangible assets to fair
value. Impairment charges are not allocated to our reportable segments.
Restructuring and other charges includes store closure costs recorded in connection with the Michael Kors Retail Fleet
Optimization Plan and other restructuring initiatives, as well as transaction and transition costs recorded in connection with our
acquisitions of Versace, Jimmy Choo and MKHKL businesses (please refer to Note 4 and Note 10 to the accompanying consolidated
financial statements for additional information). Restructuring and other charges are not allocated to our reportable segments.
Income from operations consists of gross profit minus total operating expenses.
Other (income) expense, net includes insurance settlements, proceeds received related to our anti-counterfeiting efforts
and rental income from our owned distribution center in Europe. In future periods, it may include any other miscellaneous activities
not directly related to our operations.
Interest expense, net represents interest and fees on our revolving credit facilities, senior notes, term loan facilities and
letters of credit (see “Liquidity and Capital Resources” for further detail on our credit facilities), as well as amortization of deferred
financing costs and original issue discount, offset by interest earned on highly liquid investments (investments purchased with an
original maturity of three months or less, classified as cash equivalents) and interest on cross-currency swaps designated as net
investment hedges (see Note 14 to the accompanying consolidated financial statements for additional information).
Foreign currency (gain)/loss includes net gains or losses related to the mark-to-market (fair value) on our forward currency
contracts not designated as accounting hedges, including acquisition-related contracts, and unrealized income or loss from the re-
measurement of monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries.
Noncontrolling interests/Redeemable noncontrolling interest represents the portion of the equity ownership in the Michael
Kors Latin American joint venture, MK (Panama) Holdings, S.A. and subsidiaries (“MK Panama”), noncontrolling interests in
JC Industry S.r.L and JC Gulf Trading LLC, as well as in J. Choo Russia J.V. Limited, and noncontrolling interests in Versace
Singapore Pte. Ltd. and Versace Korea Co. Ltd, as well as the redeemable noncontrolling interest in Versace Australia PTY Limited.
39
Results of Operations
Comparison of Fiscal 2019 with Fiscal 2018
The following table details the results of our operations for Fiscal 2019 and Fiscal 2018 and expresses the relationship of
certain line items to total revenue as a percentage (dollars in millions):
Fiscal Years Ended
March 30,
2019
March 31,
2018
$ Change
% Change
% of Total
Revenue for
Fiscal 2019
% of Total
Revenue for
Fiscal 2018
Statements of Operations Data:
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Restructuring and other charges (1)
Total operating expenses
Income from operations
Other income, net
Interest expense, net
Foreign currency loss (gain)
Income before provision for income taxes
Provision for income taxes
Net income
$
5,238
$
4,719
$
2,058
3,180
2,075
225
21
124
2,445
735
(4)
38
80
621
79
542
1,860
2,859
1,767
208
33
102
2,110
749
(2)
22
(13)
742
150
592
Less: Net loss attributable to noncontrolling
interests
(1)
—
Net income attributable to Capri
$
543
$
592
$
519
198
321
308
17
(12)
22
335
(14)
(2)
16
93
(121)
(71)
(50)
(1)
(49)
11.0 %
10.6 %
11.2 %
17.4 %
8.2 %
(36.4)%
21.6 %
15.9 %
(1.9)%
NM
72.7 %
NM
(16.3)%
(47.3)%
(8.4)%
NM
(8.3)%
___________________
NM Not meaningful.
39.3 %
60.7 %
39.6 %
4.3 %
0.4 %
2.4 %
46.7 %
14.0 %
(0.1)%
0.7 %
1.5 %
11.9 %
1.5 %
39.4 %
60.6 %
37.4 %
4.4 %
0.7 %
2.2 %
44.7 %
15.9 %
— %
0.5 %
(0.3)%
15.7 %
3.2 %
(1)
Includes store closure costs recorded in connection with the Michael Kors Retail Fleet Optimization Plan (as defined in Note
10) and other restructuring initiatives, as well as transaction and transition costs recorded in connection with our acquisitions
of Versace and Jimmy Choo.
Total Revenue
Total revenue increased $519 million, or 11.0%, to $5.238 billion for Fiscal 2019, compared to $4.719 billion for Fiscal
2018, which included net unfavorable foreign currency effects of $34 million primarily related to the weakening of the Euro, the
British Pound, the Chinese Renminbi and the Canadian Dollar against the U.S. Dollar in Fiscal 2019, as compared to Fiscal 2018.
On a constant currency basis, our total revenue increased $553 million, or 11.7%. Total revenue for Fiscal 2019 included
approximately $329 million of incremental revenue attributable to Jimmy Choo, which was acquired and consolidated into our
results of operations effective November 1, 2017 and $137 million of incremental revenue attributable to Versace, which was
acquired and consolidated into our results of operations effective December 31, 2018. The remainder of the revenue increase was
attributable to higher Jimmy Choo and Michael Kors revenues, as compared to the prior year.
Gross Profit
Gross profit increased $321 million, or 11.2%, to $3.180 billion during Fiscal 2019, compared to $2.859 billion for Fiscal
2018, which included net unfavorable foreign currency effects of $20 million. Gross profit as a percentage of total revenue increased
10 basis points to 60.7% during Fiscal 2019, compared to 60.6% during Fiscal 2018. The increase in our gross profit margin was
primarily attributable to the inclusion of Jimmy Choo, which benefited our gross margin 50 basis points, partially offset by lower
gross profit margin for Michael Kors primarily driven by increased markdowns during Fiscal 2019, as compared to Fiscal 2018.
40
Total Operating Expenses
Total operating expenses increased $335 million, or 15.9%, to $2.445 billion during Fiscal 2019, compared to $2.110 billion(cid:3)
for Fiscal 2018. Our operating expenses included a net favorable foreign currency impact of approximately $18 million. Total
operating expenses as a percentage of total revenue increased to 46.7% in Fiscal 2019, compared to 44.7% in Fiscal 2018. The
components that comprise total operating expenses are detailed below.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $308 million, or 17.4%, to $2.075 billion during Fiscal 2019,
compared to $1.767 billion for Fiscal 2018. The increase in selling, general and administrative expenses was primarily due to the
following:
•
•
•
incremental costs of $187 million associated with the recently acquired Jimmy Choo business, which has been
consolidated in our operations beginning on November 1, 2017;
incremental costs of $86 million associated with the recently acquired Versace business, which has been consolidated
in our operations beginning on December 31, 2018; and
increased retail store and e-commerce related costs of $53 million, primarily comprised of increased occupancy costs,
increased advertising costs and increased salaries.
These increases were partially offset by decreased distribution and selling costs of $24 million.
Corporate unallocated expenses, which are included within selling, general and administrative expenses discussed above,
but are not directly attributable to a reportable segment, increased $6 million, or 6.9%, to $93 million in Fiscal 2019 as compared
to $87 million in Fiscal 2018. Selling, general and administrative expenses as a percentage of total revenue increased to 39.6%
during Fiscal 2019, compared to 37.4% for Fiscal 2018, primarily due to the inclusion of expenses associated with Jimmy Choo
and Versace and increased retail store related costs, partially offset by lower selling and distribution costs as a percentage of total
revenue during Fiscal 2019, as compared to Fiscal 2018.
Depreciation and Amortization
Depreciation and amortization increased $17 million, or 8.2%, to $225 million during Fiscal 2019, compared to $208 million
for Fiscal 2018. The increase in depreciation and amortization expense was primarily attributable to incremental depreciation and
amortization expenses of $19 million and $9 million, respectively, attributable to Jimmy Choo and Versace (including amortization
of purchase accounting adjustments), partially offset by lower depreciation due to previously recorded fixed asset impairment
charges. Depreciation and amortization decreased to 4.3% as a percentage of total revenue during Fiscal 2019, compared to 4.4%
for Fiscal 2018.
Impairment of Long-Lived Assets
During Fiscal 2019, we recognized long-lived asset impairment charges of $21 million, of which $17 million related to
underperforming Michael Kors full-price retail store locations, some of which will be closed as part of our previously announced
Retail Fleet Optimization Plan (see Note 10 and Note 13 to the accompanying consolidated financial statements for additional
information), as well as $4 million relating to Jimmy Choo retail store locations. During Fiscal 2018, we recognized long-lived
asset impairment charges of approximately $33 million, which primarily related to underperforming Michael Kors full-price retail
store locations. Impairment charges are not evaluated as part of our reportable segments’ results (See Segment Information above
for additional information).
Restructuring and Other Charges
During Fiscal 2019, we recognized restructuring and other charges of $124 million, which included restructuring charges
of $45 million, primarily associated with our Retail Fleet Optimization Plan (see Note 10 to the accompanying consolidated
financial statements for additional information) and transaction and transition costs of $79 million, $52 million of which related
to the Versace acquisition and $27 million related to the Jimmy Choo acquisition.
During Fiscal 2018, we recognized restructuring and other charges of $102 million, which were comprised of $40 million
of transaction costs and $9 million of transition costs recorded in connection with the Jimmy Choo acquisition, as well as
restructuring charges of $53 million recorded in connection with our Michael Kors brand Retail Fleet Optimization Plan.
Restructuring and other charges are not evaluated as part of our reportable segments' results (See Segment Information above for
additional information).
41
Income from Operations
As a result of the foregoing, income from operations decreased $14 million, or 1.9%, to $735 million during Fiscal 2019,
compared to $749 million for Fiscal 2018. Income from operations as a percentage of total revenue decreased to 14.0% in Fiscal
2019, compared to 15.9% in Fiscal 2018. See Segment Information above for a reconciliation of our segment operating income
to total operating income.
Interest expense, net
Interest expense, net increased $16 million, or 72.7%, to $38 million for Fiscal 2019, as compared to $22 million for Fiscal
2018, primarily due to increased interest expense attributable to higher borrowings than in prior year (see Note 11 to the
accompanying consolidated financial statements for additional information). This increase was partially offset by a $17
million reduction to interest expense related to the cross-currency swap used as a net investment hedge during Fiscal 2019 (see Note
14 to the accompanying consolidated financial statements for additional information).
Foreign Currency Loss (Gain)
We recognized a net foreign currency loss of $80 million during Fiscal 2019, primarily attributable to a $77 million loss
related to forward foreign currency exchange derivative contracts to hedge the transaction price of the Versace acquisition (see
Note 14 to the accompanying consolidated financial statements for additional information).
We recognized a net foreign currency gain of $13 million during Fiscal 2018, which included net gains on revaluation and
settlement of certain of our accounts payable in currencies other than the functional currency of the applicable reporting units,
and the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries, as well as a net gain of $3
million related to the change in fair value of undesignated forward foreign currency exchange contracts, which included a $5
million realized gain related to a forward foreign currency exchange derivative contract to hedge the transaction price of the Jimmy
Choo acquisition (please refer to Note 4 and Note 14 to the accompanying consolidated financial statements for additional
information).
Provision for Income Taxes
We recognized $79 million of income tax expense during Fiscal 2019, compared with $150 million for Fiscal 2018. Our
effective tax rate for Fiscal 2019 was 12.7%, compared to 20.2% for Fiscal 2018. The decrease in our effective tax rate was
primarily due to an increase in the proportion of earnings generated in lower tax jurisdictions and the release of certain income
tax reserves during Fiscal 2019. These decreases were partially offset by a lower favorable effect of our global financing activities
during Fiscal 2019, compared to Fiscal 2018. The global financing activities are related to our previously disclosed 2014 move
of our principal executive office from Hong Kong to the United Kingdom (“U.K.”) and decision to become a U.K. tax resident.
In connection with this decision, we funded our international growth strategy through intercompany debt financing arrangements
between certain of our U.S., U.K. and Switzerland subsidiaries in December 2015. Accordingly, due to the difference in the statutory
income tax rates between these jurisdictions, we realized a lower effective tax rate.
Our effective tax rate may fluctuate from time to time due to the effects of changes in U.S. state and local taxes and tax
rates in foreign jurisdictions. In addition, factors such as the geographic mix of earnings, enacted tax legislation and the results of
various global tax strategies, may also impact our effective tax rate in future periods.
Net Income Attributable to Capri
As a result of the foregoing, our net income attributable to Capri decreased $49 million, or 8.3%, to $543 million during
Fiscal 2019, compared to $592 million for Fiscal 2018.
42
Segment Information
Versace
Revenues
Loss from operations
Operating margin
Revenues
Fiscal Years Ended
March 30,
2019
March 31,
2018
$ Change
$
$
137
(11)
(8.0)%
— $
—
—%
137
(11)
The Versace business acquired on December 31, 2018 contributed approximately $137 million to our total revenue for Fiscal
2019.
Loss from Operations
During the period from the December 31, 2018 acquisition date to March 30, 2019, we recorded a net loss from operations
for Versace of $11 million (after amortization of non-cash purchase accounting adjustments and transaction and transition related
costs).
Jimmy Choo
Revenues
Income (loss) from operations
Operating margin
Revenues
Fiscal Years Ended
March 30,
2019
March 31,
2018
$ Change
$
$
590
20
3.4%
$
223
(4)
(1.8)%
367
24
Revenue earned from Jimmy Choo increased $367 million to $590 million for Fiscal 2019, compared to $223 million for
Fiscal 2018. Fiscal 2019 included incremental revenue of $329 million due to the inclusion of the Jimmy Choo business acquired
on November 1, 2017 for the entire Fiscal 2019. In addition, Jimmy Choo sales increased $38 million primarily due to higher
footwear sales in all major geographies.
Income (loss) from Operations
During Fiscal 2019, our operating income for Jimmy Choo increased by $24 million from a loss of $4 million in for the
period from the date of acquisition through March 31, 2018 to income of $20 million for Fiscal 2019. Income from operations as
a percentage of Jimmy Choo revenue improved 520 basis points from (1.8)% for the period from the date of acquisition through
March 31, 2018 compared to 3.4% in Fiscal 2019, which was primarily due to operating leverage of expenses, including selling,
retail store related and advertising and marketing, partially offset by an increase in other corporate expenses.
43
Michael Kors
Revenues
Income from operations
Operating margin
Revenues
Fiscal Years Ended
% Change
March 30,
2019
$
4,511
964
21.4%
$
March 31,
2018
4,496
975
21.7%
$ Change
$
15
(11)
As Reported
0.3 %
(1.1)%
Constant
Currency
0.8%
Michael Kors revenues increased $15 million, or 0.3%, to $4.511 billion for Fiscal 2019, compared to $4.496 billion for
Fiscal 2018, which included unfavorable foreign currency effects of $23 million. On a constant currency basis, revenue
increased $38 million, or 0.8%. The increase in revenues was due to:
•
•
an increase in non-comparable store sales of $58 million, due to the growth of our Michael Kors retail store network
of 24 stores (net of stores closures), primarily in Asia; and
a $3 million increase in revenues, primarily driven by higher wholesale sales of footwear, partially offset by lower
licensing revenues related to sales of fashion watches and jewelry.
These increases were partially offset by:
•
a decrease in comparable store sales of $46 million, or 2.0%, including net unfavorable foreign currency effects of $14
million, which was primarily attributable to lower sales from our women’s accessories, watches and jewelry product
categories, offset in part by higher sales from women’s footwear and apparel. Our comparable store sales benefited
approximately 270 basis points from the inclusion of e-commerce sales.
Income from Operations
Income from operations for our Michael Kors segment decreased $11 million, or 1.1%, to $964 million for Fiscal 2019,
compared to $975 million for Fiscal 2018. Income from operations as a percentage of Michael Kors revenue declined 30 basis
points to 21.4% in Fiscal 2019, compared to 21.7% in Fiscal 2018, largely due to a decrease in gross profit margin, as previously
discussed.
44
Results of Operations
Comparison of Fiscal 2018 with Fiscal 2017
The following table details the results of our operations for Fiscal 2018 and Fiscal 2017 and expresses the relationship of
certain line items to total revenue as a percentage (dollars in millions):
Fiscal Years Ended
March 31,
2018
April 1,
2017
$ Change
% Change
% of Total
Revenue for
Fiscal 2018
% of Total
Revenue for
Fiscal 2017
Statements of Operations Data:
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Restructuring and other charges (1)
Total operating expenses
Income from operations
Other income, net
Interest expense, net
Foreign currency (gain) loss
Income before provision for income taxes
Provision for income taxes
Net income
Less: Net loss attributable to noncontrolling
interest
$
4,719
$
4,494
$
1,860
2,859
1,767
208
33
102
2,110
749
(2)
22
(13)
742
150
592
—
1,833
2,661
1,541
220
199
11
1,971
690
(6)
4
3
689
137
552
(1)
553
$
39.4 %
60.6 %
37.4 %
4.4 %
0.7 %
2.2 %
44.7 %
15.9 %
— %
0.5 %
(0.3)%
15.7 %
3.2 %
40.8 %
59.2 %
34.3 %
4.9 %
4.4 %
0.2 %
43.9 %
15.4 %
(0.1)%
0.1 %
0.1 %
15.3 %
3.0 %
225
27
198
226
(12)
(166)
91
139
59
4
18
(16)
53
13
40
1
39
5.0 %
1.5 %
7.4 %
14.7 %
(5.5)%
(83.4)%
NM
7.1 %
8.6 %
66.7 %
NM
NM
7.7 %
9.5 %
7.2 %
NM
7.1 %
Net income attributable to Capri
$
592
$
___________________
NM Not meaningful.
(1)
Includes store closure costs recorded in connection with the Michael Kors Retail Fleet Optimization Plan (as defined in Note
10), and transaction and transition costs recorded in connection with our acquisitions of the Jimmy Choo and MKHKL
businesses (see Note 4 to the accompanying consolidated financial statements).
Total Revenue
Total revenue increased $225 million, or 5.0%, to $4.719 billion for Fiscal 2018, compared to $4.494 billion for Fiscal
2017, which included net favorable foreign currency effects of $64 million primarily related to the strengthening of the Euro, the
Chinese Renminbi and the Canadian Dollar, partially offset by the weakening of the Japanese Yen against the U.S. Dollar in Fiscal
2018, as compared to Fiscal 2017. On a constant currency basis, total revenue increased $161 million, or 3.6%. Total revenue for
Fiscal 2018 included approximately $223 million of incremental revenue attributable to Jimmy Choo, which was acquired and
consolidated into the Company’s results of operations effective November 1, 2017.
Gross Profit
Gross profit increased $198 million, or 7.4%, to $2.859 billion during Fiscal 2018, compared to $2.661 billion for Fiscal
2017, which included net favorable foreign currency effects of $40 million. Gross profit as a percentage of total revenue increased
140 basis points to 60.6% during Fiscal 2018, compared to 59.2% during Fiscal 2017. Our gross margin benefited 20 basis points
from the inclusion of Jimmy Choo from the November 1, 2017 acquisition date to March 31, 2018. The remaining increase in the
Michael Kors gross profit margin was primarily driven by a favorable channel mix due to a higher proportion of retail sales, as
well as favorable geographic mix of sales during Fiscal 2018, as compared to Fiscal 2017.
45
Total Operating Expenses
Total operating expenses increased $139 million, or 7.1%, to $2.110 billion during Fiscal 2018, compared to 1.971 billion
for Fiscal 2017. Our operating expenses included a net unfavorable foreign currency impact of approximately $38 million. Total
operating expenses as a percentage of total revenue increased to 44.7% in Fiscal 2018, compared to 43.9% in Fiscal 2017. The
components that comprise total operating expenses are detailed below.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $226 million, or 14.7%, to $1.767 billion during Fiscal 2018,
compared to $1.541 billion for Fiscal 2017, including a net unfavorable foreign currency impact of $32 million. The increase in
selling, general and administrative expenses was primarily due to the following:
•
•
•
•
incremental costs of $135 million associated with our newly acquired Jimmy Choo business, which has been
consolidated into our operations beginning on November 1, 2017;
an increase of $48 million in retail store and overhead costs (excluding newly acquired businesses), primarily comprised
of increased occupancy costs of $26 million, advertising costs of $13 million and compensation-related costs of $7
million;
incremental expenses of approximately $22 million due to the inclusion of the Greater China business acquired on
May 31, 2016 for the full year in Fiscal 2018; and
an increase of $32 million in corporate expenses.
These increases were partially offset by:
•
lower rent expense of $16 million in connection with store closures under our Michael Kors Retail Fleet Optimization
Plan.
Corporate unallocated expenses, which are included within selling, general and administrative expenses discussed above
but are not directly attributable to a reportable segment, increased $8 million or 10.1%, to $87 million in Fiscal 2018 as compared
to $79 million in Fiscal 2017. Selling, general and administrative expenses as a percentage of total revenue increased to 37.4%
during Fiscal 2018, compared to 34.3% for Fiscal 2017, primarily due to expenses associated with the newly acquired Jimmy
Choo business.
Depreciation and Amortization
Depreciation and amortization decreased $12 million, or 5.5%, to $208 million during Fiscal 2018, compared to $220
million for Fiscal 2017. The decrease in depreciation and amortization expense was primarily attributable to lower depreciation
due to fixed asset impairment charges recorded in Fiscal 2017 and Fiscal 2018. The depreciation and amortization expense
for Fiscal 2018 included incremental depreciation and amortization of $13 million related to the newly acquired Jimmy Choo
business, as well as $6 million of incremental depreciation and amortization expenses due to the inclusion of the Greater China
business for the full period in Fiscal 2018, both including amortization of the respective purchase accounting
adjustments. Depreciation and amortization decreased to 4.4% as a percentage of total revenue during Fiscal 2018, compared
to 4.9% for Fiscal 2017.
Impairment of Long-Lived Assets
During Fiscal 2018, we recognized long-lived asset impairment charges of $33 million, $31 million of which related to
underperforming Michael Kors full-price retail store locations, some of which were subject to closure as part of the Company’s
previously announced Michael Kors Retail Fleet Optimization Plan and $2 million related to wholesale operations. During Fiscal
2017, we recognized long-lived asset impairment charges of approximately $199 million, principally related to fixed assets and
lease rights for underperforming Michael Kors retail store locations. Please refer to Note 13 and Note 20 to the accompanying
consolidated financial statements for additional information.
Restructuring and Other Charges
During Fiscal 2018, we recognized restructuring and other charges of $102 million, which were comprised of $40 million
of transaction costs and $9 million of transition costs recorded in connection with the Jimmy Choo acquisition, as well as
restructuring charges of $53 million recorded in connection with our Michael Kors Retail Fleet Optimization Plan (see Note 10
to the accompanying consolidated financial statements for additional information). During Fiscal 2017, we recorded $11 million
of transaction costs related to the acquisition of the Greater China business.
46
Income from Operations
As a result of the foregoing, income from operations increased $59 million, or 8.6%, to $749 million during Fiscal 2018,
compared to $690 million for Fiscal 2017, which included net favorable foreign currency effects of $2 million. Income from
operations as a percentage of total revenue increased to 15.9% in Fiscal 2018, compared to 15.4% in Fiscal 2017. See Segment
Information above for a reconciliation of our segment operating income to total operating income.
Other Income, net
Other income, net of $2 million during Fiscal 2018 was primarily related to rental income from our owned distribution
center in Europe. Other income of $6 million during Fiscal 2017 was primarily comprised of a $4 million in insurance settlements
related to the prior-year disruption to our former third-party operated e-commerce fulfillment center, $1 million in income related
to our anti-counterfeiting efforts and $1 million of rental income from our owned distribution center in Europe.
Interest expense, net
Interest expense, net increased $18 million to $22 million for Fiscal 2018, as compared to $4 million for Fiscal 2017,
primarily due to higher interest expense on long-term borrowings used to finance the acquisition of Jimmy Choo during Fiscal
2018 (see Note 11 for additional information).
Foreign Currency (Gain) Loss
We recognized a net foreign currency gain of $13 million during Fiscal 2018, which included net gains on revaluation and
settlement of certain of our accounts payable in currencies other than the functional currency of the applicable reporting units,
and the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries, as well as a net gain of $3
million related to the change in fair value of undesignated forward foreign currency exchange contracts, which included a $5
million realized gain related to a forward foreign currency exchange derivative contract to hedge the transaction price of the Jimmy
Choo acquisition (see Note 4 and Note 14 to the accompanying consolidated financial statements for additional information).
The foreign currency loss of $3 million recorded during Fiscal 2017 was primarily attributable to net losses on the revaluation
and settlement of certain of our accounts payable in currencies other than the functional currency of the applicable reporting units,
as well as the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries. The net foreign currency
loss for Fiscal 2017 also included favorable mark-to-market adjustment of $3 million related to our forward foreign currency
contracts not designated as accounting hedges.
Provision for Income Taxes
We recognized $150 million of income tax expense during Fiscal 2018, compared with $137 million for Fiscal 2017. Our
effective tax rate for Fiscal 2018 was 20.2%, compared to 19.9% for Fiscal 2017. The increase in our effective tax rate was primarily
due to the the re-measurement of uncertain U.S. state and foreign tax positions and the unfavorable effects of U.S. tax reform.
These increases were partially offset by an increase in income in lower tax jurisdictions, primarily in Europe.
Net Income Attributable to Capri
As a result of the foregoing, our net income attributable to Capri increased $39 million, or 7.1%, to $592 million during
Fiscal 2018, compared to $553 million for Fiscal 2017.
47
Segment Information
Jimmy Choo
Revenues
Loss from operations
Operating margin
Fiscal Years Ended
March 31,
2018
April 1,
2017
$
$
223
(4)
(1.8)%
— $
—
—%
$ Change
223
(4)
The Jimmy Choo business acquired on November 1, 2017 contributed approximately $223 million to our total revenue
for Fiscal 2018.
During the period from the November 1, 2017 acquisition date to March 31, 2018, we recorded a net loss from operations
for Jimmy Choo of $4 million (after amortization of non-cash purchase accounting adjustments and transaction and transition
related costs).
Michael Kors
Revenues
Income from operations
Operating margin
Revenues
Fiscal Years Ended
% Change
March 31,
2018
$
$
4,496
975
21.7%
April 1,
2017
4,494
979
21.8%
$
$ Change
2
(4)
As Reported
— %
(0.4)%
Constant
Currency
(1.4)%
Michael Kors revenues increased $2 million, to $4.496 billion for Fiscal 2018, compared to $4.494 billion for Fiscal 2017,
which included favorable foreign currency effects of $64 million. On a constant currency basis, revenue from Michael Kors
decreased $62 million, or 1.4%. The increase in revenues was due to:
•
an increase in non-comparable store sales of $190 million, including net favorable foreign currency effects of $4 million,
which was primarily attributable to the growth of our Michael Kors retail store network (net of stores closures) and e-
commerce operations since April 1, 2017. Our Greater China business acquired on May 31, 2016 contributed
incremental revenues of approximately $42 million to non-comparable store sales for Fiscal 2018.
This increase was partially offset by:
•
•
a decrease in our comparable store sales of $50 million, or 2.2%, including net favorable foreign currency effects of
$35 million, which was primarily attributable to lower sales from our women’s accessories, watches and jewelry product
categories, offset in part by higher sales from men’s accessories, women’s apparel and footwear during Fiscal
2018 compared to Fiscal 2017. Our comparable store sales benefited approximately 230 basis points from the inclusion
of e-commerce sales in comparable store sales; and
a $137 million decrease in wholesale revenue, including net favorable foreign currency effects of $25 million, due to
lower shipments associated with our strategic initiative to reduce promotional activity, which resulted in lower women’s
accessories sales, offset in part by higher sales from men’s and women’s apparel during Fiscal 2018 as compared
to Fiscal 2017.
Income from Operations
Income from operations for our Michael Kors segment decreased $4 million, or 0.4%, to $975 million for Fiscal 2018,
compared to $979 million for Fiscal 2017. Income from operations as a percentage of Michael Kors revenue decreased 10 basis
points from 21.8% for Fiscal 2017, to 21.7% for Fiscal 2018. The decrease in income from operations as a percentage of Michael
Kors revenue was attributable to an increase in operating expenses of 130 basis points, primarily attributable to an increase in
retail store related costs and corporate allocated expenses, offset in part by lower depreciation and amortization expenses. This
decrease was partially offset by an increase in gross profit margin of 120 basis points, as previously discussed.
48
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are the cash flows generated from our operations, along with borrowings available under
our credit facilities (see below discussion regarding “Revolving Credit Facilities”) and available cash and cash equivalents. Our
primary use of this liquidity is to fund the ongoing cash requirements, including our working capital needs and capital investments
in our business, debt repayments, acquisitions, returns of capital including share repurchases, dividends and other corporate
activities. We believe that the cash generated from our operations, together with borrowings available under our revolving credit
facilities and available cash and cash equivalents, will be sufficient to meet our working capital needs for the next 12 months,
including investments made and expenses incurred in connection with our store growth plans, shop-in-shop growth, investments
in corporate and distribution facilities, continued systems development, e-commerce and marketing initiatives. We spent $181
million on capital expenditures during Fiscal 2019, and expect to spend approximately $300 million during Fiscal 2020. The
majority of the Fiscal 2018 expenditures related to our retail operations (including e-commerce), with the remainder related to
enhancements to our distribution and information systems infrastructure and our corporate offices, as well as in connection with
new shop-in-shops.
The following table sets forth key indicators of our liquidity and capital resources (in millions):
Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Short-term debt
Long-term debt
Cash Flows Provided By (Used In):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
$
$
Cash Provided by Operating Activities
As of
March 30,
2019
March 31,
2018
$
$
$
$
$
172
187
6,650
630
1,936
$
$
$
$
$
163
302
4,059
200
675
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
694
(2,125)
1,451
(11)
9
$
$
$
1,062
(1,533)
389
15
(67) $
1,035
(651)
(850)
(6)
(472)
Cash provided by operating activities decreased $368 million to $694 million during Fiscal 2019, as compared to $1.062
billion for Fiscal 2018, which was primarily due to decreases related to changes in our working capital primarily attributable to
increased inventory purchases as well as the timing of payments and receipts. The net decrease in cash flows also included decreases
to our net income after non-cash adjustments, partially offset by an increase in tax-related long-term liabilities.
Cash provided by operating activities increased $27 million to $1.062 billion during Fiscal 2018, as compared to $1.035
billion for Fiscal 2017. The increase in cash flows from operating activities was primarily due to an increase related to changes
in our working capital, partially offset by a decrease in our net income after non-cash adjustments. The increase related to our
working capital was primarily attributable to an increase in accrued expenses and other current liabilities primarily driven by
restructuring liabilities recorded in Fiscal 2018 and the timing of tax related payments, and favorable changes in prepaid expenses
and other current assets and inventories primarily due to timing. These increases were partially offset by lower accounts payable
primarily due to the timing of payments and an unfavorable change in accounts receivable primarily due to a higher decline in
wholesale inventory purchases in the prior year.
49
Cash Used in Investing Activities
Net cash used in investing activities increased $592 million to $2.125 billion during Fiscal 2019, compared to $1.533 billion(cid:3)
during Fiscal 2018. The decrease in cash was primarily attributable to a $460 million increase of cash paid, net of cash acquired,
in connection with our Fiscal 2019 acquisition of the Versace business, as compared to our acquisition of the Jimmy Choo business
during Fiscal 2018. The decrease in cash was also due to a $77 million realized loss related to an undesignated derivative contract
during Fiscal 2019 associated with the Versace acquisition, as well as higher capital expenditures of $61 million, due to higher
spending related to build-outs for new and renovated retail stores and expenditures related to corporate infrastructure.
Net cash used in investing activities increased $882 million to $1.533 billion during Fiscal 2018, compared to $651
million during Fiscal 2017. The decrease in cash was primarily attributable to a $934 million increase of cash paid, net of cash
acquired, in connection with our Fiscal 2018 acquisition of the Jimmy Choo business, as compared to our acquisition of the
previously licensed business in Greater China during Fiscal 2017. This decrease in cash was partially offset by lower capital
expenditures of $45 million, due to lower spending related to build-outs of new stores and shop-in-shops and lower corporate
expenditures.
Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities increased $1.062 billion to $1.451 billion during Fiscal 2019, compared to $389
million during Fiscal 2018. The increase in cash from financing activities was due to increased debt borrowings of $908 million,
net of debt repayments, primarily attributable to higher term loan borrowings to finance the acquisition of Versace, as well as a
decrease of $154 million in cash payments to repurchase our ordinary shares.
Net cash provided by financing activities was $389 million during Fiscal 2018, as compared to net cash used in financing
activities of $850 million during Fiscal 2017. The $1.239 billion increase in cash from financing activities was due to increased
debt borrowings of $589 million, which included senior notes and term loan borrowings to finance the acquisition of Jimmy Choo,
net of cash repayments, as well as a decrease of $644 million in cash payments to repurchase our ordinary shares.
50
Debt Facilities
The following table presents a summary of the Company’s borrowing capacity and amounts outstanding as of March 30,
2019 and March 31, 2018 (dollars in millions):
Senior Unsecured Revolving Credit Facility:
Revolving Credit Facility (excluding up to a $500 million accordion feature) (1)
Total Availability
Borrowings outstanding (2)
Letter of credit outstanding
Remaining availability
Term Loan Facility ($1.6 billion) (3)
Borrowings Outstanding, net of debt issuance costs (4)
Remaining availability
4.000% Senior Notes
Borrowings Outstanding, net of debt issuance costs and discount amortization (4)
Other Borrowings (4)
Hong Kong Uncommitted Credit Facility:
Total availability (100 million Hong Kong Dollars)
Borrowings outstanding
Bank guarantees outstanding (12 million Hong Kong Dollars)
Remaining availability
China Uncommitted Credit Facility:
Borrowings outstanding
Total and remaining availability (100 million Chinese Yuan)
Japan Credit Facility:
Borrowings outstanding
Total and remaining availability (1.0 billion Japanese Yen)
Versace Uncommitted Credit Facility:
Total availability (20 million Euro)
Borrowings outstanding (10 million Euro) (2)
Remaining availability
Total borrowings outstanding(1)
Total remaining availability
Fiscal Years Ended
March 30,
2019
March 31,
2018
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,000
539
17
444
$
$
1,570
$
— $
445
1
13
—
2
11
$
$
$
$
— $
$
14
— $
$
9
22
11
11
2,566
489
$
$
$
$
1,000
200
16
784
229
—
445
1
13
—
2
11
—
—
—
9
—
—
—
875
804
_____________________________
(1) The 2018 Credit Facility contains customary events of default and requires us to maintain a leverage ratio at the end of each
fiscal quarter of no greater than 3.75 to 1, calculated as the ratio of the sum of total indebtedness as of the date of the measurement
plus 6.0 times the consolidated rent expense for the last four consecutive fiscal quarters, to Consolidated EBITDAR for the
last four consecutive fiscal quarters. Consolidated EBITDAR is defined as consolidated net income plus income tax expense,
net interest expense, depreciation and amortization expense, consolidated rent expense and other non-cash charges, subject to
certain deductions. The 2018 Credit Facility also includes other customary covenants that limit additional indebtedness,
guarantees, liens, acquisitions and other investments and cash dividends. As of March 30, 2019 and March 31, 2018, we were
in compliance with all covenants related to our agreements then in effect governing our debt.
(2) Recorded as short-term debt in our consolidated balance sheets as of March 30, 2019 and March 31, 2018.
51
(3) The prior $1.0 billion term loan facility was fully utilized to finance a portion of the purchase price of our acquisition of
Jimmy Choo on November 1, 2017, and was fully repaid during Fiscal 2019. See Note 4 to the accompanying consolidated
financial statements for additional information.
(4) Recorded as long-term debt in our consolidated balance sheet as of March 30, 2019 and March 31, 2018, except for the
current portion of $80 million outstanding under the 2018 Term Loan Facility, which was recorded within short-term
debt at March 30, 2019.
We believe that our 2018 Credit Facility is adequately diversified with no undue concentration in any one financial institution.
As of March 30, 2019, there were 18 financial institutions participating in the facility, with none maintaining a maximum
commitment percentage in excess of 10%. We have no reason to believe that the participating institutions will be unable to fulfill
their obligations to provide financing in accordance with the terms of the 2018 Credit Facility.
See Note 11 in the accompanying consolidated financial statements for detailed information relating to our credit facilities
and debt obligations.
Share Repurchase Program
The following table presents our treasury share repurchases during the fiscal years ended March 30, 2019 and March 31,
2018 (dollars in millions):
Fiscal Years Ended
March 30,
2019
March 31,
2018
Cost of shares repurchased under share repurchase program
Fair value of shares withheld to cover tax obligations for vested restricted share
awards
Total cost of treasury shares repurchased
$
$
200
$
7
207
$
358
3
361
Shares repurchased under share repurchase program
Shares withheld to cover tax withholding obligations
3,718,237
107,712
3,825,949
7,700,959
92,536
7,793,495
As of March 30, 2019, the remaining availability under our $1.0 billion share repurchase program was $442 million, which
expired on May 25, 2019. Share repurchases may be made in open market or privately negotiated transactions, subject to market
conditions, applicable legal requirements, trading restrictions under the our insider trading policy, and other relevant factors. This
program may be suspended or discontinued at any time.
Contractual Obligations and Commercial Commitments
As of March 30, 2019, our lease commitments and contractual obligations were as follows (in millions):
Fiscal Years Ending
Operating leases
Inventory Purchase Obligations
Other commitments
Short-term debt
Long-term debt
Total
Fiscal
2020
431
865
70
630
—
1,996
$
$
Fiscal
2021-2022
728
—
26
—
954
1,708
$
$
Fiscal
2023-2024
506
—
2
—
536
1,044
$
$
Fiscal 2025 and
Thereafter
Total
$
$
509
—
—
—
446
955
$
$
2,174
865
98
630
1,936
5,703
Operating lease obligations represent our equipment leases and the minimum lease rental payments under non-cancelable
operating leases for our real estate locations globally. In addition to the above amounts, we are typically required to pay real estate
taxes, contingent rent based on sales volume and other occupancy costs relating to our leased properties for our retail stores.
Inventory purchase obligations represent our contractual agreements relating to future purchases of inventory.
Other commitments include our non-cancelable contractual obligations related to marketing and advertising agreements,
information technology agreements, and supply agreements.
52
Excluded from the above commitments is $192 million of long-term liabilities related to net uncertain tax positions, due
to the uncertainty of the time and nature of resolution.
The above table also excludes current liabilities (other than short-term debt) recorded as of March 30, 2019, as these items
will be paid within one year, and non-current liabilities that have no cash outflows associated with them (e.g., deferred taxes).
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital,
incurring debt or operating our business. In addition to the commitments in the above table, our off-balance sheet commitments
relating to our outstanding letters of credit were $18 million at March 30, 2019, including $1 million in letters of credit issued
outside of the 2018 Credit Facility. In addition, as of March 30, 2019, bank guarantees of approximately $2 million were supported
by our Hong Kong Credit Facility. We do not have any other off-balance sheet arrangements or relationships with entities that are
not consolidated into our financial statements that have or are reasonably likely to have a material current or future effect on our
financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or
capital resources.
Effects of Inflation
We do not believe that our sales or operating results have been materially impacted by inflation during the periods presented
in our financial statements. However, we may experience an increase in cost pressure from our suppliers in the future, which could
have an adverse impact on our gross profit results in the periods effected.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks during the normal course of our business, such as risk arising from fluctuations in
foreign currency exchange rates, as well as fluctuations in interest rates. In attempts to manage these risks, we employ certain
strategies to mitigate the effect of these fluctuations. We enter into foreign currency forward contracts to manage our foreign
currency exposure to the fluctuations of certain foreign currencies. The use of these instruments primarily helps to manage our
exposure to our foreign purchase commitments and better control our product costs. We do not use derivatives for trading or
speculative purposes.
Foreign Currency Exchange Risk
Forward Foreign Currency Exchange Contracts
We are exposed to risks on certain purchase commitments to foreign suppliers based on the value of our purchasing
subsidiaries’ local currency relative to the currency requirement of the supplier on the date of the commitment. As such, we enter
into forward currency exchange contracts that generally mature in 12 months or less and are consistent with the related purchase
commitments, to manage our exposure to the changes in the value of the Euro and the Canadian Dollar. These contracts are recorded
at fair value in our consolidated balance sheets as either an asset or liability, and are derivative contracts to hedge cash flow risks.
Certain of these contracts are designated as hedges for hedge accounting purposes, while certain of these contracts, are not designated
as hedges for accounting purposes. Accordingly, the changes in the fair value of the majority of these contracts at the balance sheet
date are recorded in our equity as a component of accumulated other comprehensive income, and upon maturity (settlement) are
recorded in, or reclassified into, our cost of sales or operating expenses, in our consolidated statement of operations and
comprehensive income, as applicable to the transactions for which the forward currency exchange contracts were established.
We perform a sensitivity analysis on our forward currency contracts, both designated and not designated as hedges for
accounting purposes, to determine the effects of fluctuations in foreign currency exchange rates. For this sensitivity analysis, we
assume a hypothetical change in U.S. Dollar against foreign exchange rates. Based on all foreign currency exchange contracts
outstanding as of March 30, 2019, a 10% appreciation or devaluation of the U.S. Dollar compared to the level of foreign currency
exchange rates for currencies under contract as of March 30, 2019, would result in a net increase and decrease, respectively, of
approximately $15 million in the fair value of these contracts.
53
Net Investment Hedges
We are exposed to adverse foreign currency exchange rate movements related to interest from our net investment hedges.
As of March 30, 2019, the net investment hedges have aggregate notional amounts of $2.190 billion to hedge our net investments
in Euro-denominated subsidiaries, and $44 million to hedge our net investments in Japanese Yen-denominated subsidiaries against
future volatility in the exchange rates between the U.S. Dollar and these currencies. Under the terms of these contracts, which
mature between January 2022 and November 2024, we will exchange the semi-annual fixed rate payments made under our Senior
Notes for fixed rate payments of 0% to 1.718% in Euros and 0.89% in Japanese Yen. Based on all net investment hedges outstanding
as of March 30, 2019, a 10% appreciation or devaluation of the U.S. Dollar compared to the level of foreign currency exchange
rates for currencies under contract as of March 30, 2019, would result in a net increase or decrease of approximately $226 million
in the fair value of these contracts.
Interest Rate Risk
We are exposed to interest rate risk in relation to borrowings outstanding under our 2018 Term Loan Facility, our 2018
Credit Facility, our Hong Kong Credit Facility, our Japan Credit Facility and our Versace Credit Facility. Our 2018 Term Loan
Facility carries interest at a rate that is based on LIBOR. Our 2018 Credit Facility carries interest rates that are tied to LIBOR and
the prime rate, among other institutional lending rates (depending on the particular origination of borrowing), as further described
in Note 11 to the accompanying consolidated financial statements. Our Hong Kong Credit Facility carries interest at a rate that is
tied to the Hong Kong Interbank Offered Rate. Our China Credit Facility carries interest at a rate that is tied to the People’s Bank
of China’s Benchmark lending rate. Our Japan Credit Facility carries interest at a rate posted by the Mitsubishi UFJ Financial
Group. Our Versace Credit Facility carries interest at a rate set by the bank on the date of borrowing that is tied to the European
Central Bank. Therefore, our statements of operations and comprehensive income and cash flows are exposed to changes in those
interest rates. At March 30, 2019, we had $539 million in short-term borrowings outstanding under our 2018 Credit Facility, $1.570
billion, net of debt issuance costs, outstanding under our 2018 Term Loan Facility and $11 million outstanding under our Versace
Credit Facility. At March 31, 2018, we had term loans of $230 million and short-term borrowings of $200 million outstanding
under our prior credit facility. These balances are not indicative of future balances that may be outstanding under our revolving
credit facilities that may be subject to fluctuations in interest rates. Any increases in the applicable interest rate(s) would cause an
increase to the interest expense relative to any outstanding balance at that date.
Credit Risk
We have outstanding $450 million aggregate principal amount of Senior Notes due in 2024. The Senior Notes bear interest
at a fixed rate equal to 4.000% per year, payable semi-annually. Our Senior Notes interest rate payable may be subject to adjustments
from time to time if either Moody’s or S&P (or a substitute rating agency), downgrades (or downgrades and subsequently upgrades)
the credit rating assigned to the Senior Notes.
Item 8.
Financial Statements and Supplementary Data
The response to this item is provided in this Annual Report on Form 10-K under Item 15. “Exhibits and Financial Statement
Schedule” and is incorporated herein by reference.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
54
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, our principal executive officer and principal financial officer, respectively, of the
design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a - 15(e) and 15(d) - 15(e)
under the Securities and Exchange Act of 1934, as amended, (the “Exchange Act”)) as of March 30, 2019. Based on the evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures are effective as of
March 30, 2019.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined under the Exchange Act Rule 13a-15 (f)) to provide reasonable assurance regarding the reliability of financial reporting
and that the consolidated financial statements have been prepared in accordance with U.S. GAAP. Such internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance (A) that transactions
are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and directors; and
(B)(cid:3)regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material(cid:3)
effect on the financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of March 30, 2019. In making
this assessment, it used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), the 2013 Framework. Based on this assessment, management has determined
that, as of March 30, 2019, our internal control over financial reporting is effective based on those criteria.
On December 31, 2018, we acquired Versace (refer to Note 4 to the accompanying consolidated financial statements for
additional information). Gianni Versace S.r.l’s assets (excluding intangible assets recorded in connection with the acquisition)
comprised approximately 9% of the Company’s total assets at March 30, 2019 and approximately 3% of the Company’s total
revenue for Fiscal 2019. As of March 30, 2019, we are in the process of evaluating the internal controls of the acquired business
and integrating it into our existing operations. The acquired business has, therefore, been excluded from management’s assessment
of internal control over financial reporting for Fiscal 2019.
The Company’s internal control over financial reporting as of March 30, 2019, as well as the consolidated financial
statements, have been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report
which appears herein. The audit report appears on page 61 of this report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended March 30, 2019,
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
The Company previously disclosed that in connection with the Retail Fleet Optimization Plan, it expects to incur
approximately $100 - $125 million of one-time costs, including lease termination and other store closure costs. Restructuring
charges recorded in connection with the Retail Fleet Optimization Plan during Fiscal 2019 were $41 million, including $31 million(cid:3)
recorded during the fourth quarter of the fiscal year. Restructuring charges recorded in Fiscal 2018 were $53 million. The Company
closed a total of 100 stores since plan inception and anticipates finalizing the remainder of the planned store closures by the end
of Fiscal 2020, with total costs in line with its original expectations.
The exact amounts and timing of the Retail Fleet Optimization Plan charges and future cash expenditures associated therewith
are undeterminable at this time. The Company will either disclose in a Current Report on Form 8-K, or disclose in another periodic
filing with the SEC, the amount of any material charges relating to the Retail Fleet Optimization Plan by major type of cost once
such amounts or range of amounts are determinable.
This disclosure is intended to satisfy the requirements of Item 2.05 of Form 8-K.
55
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2019, which is
incorporated herein by reference.
Item 11. Executive Compensation
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2019, which is
incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as of March 30, 2019 regarding compensation plans under which the Company’s
equity securities are authorized for issuance:
Equity Compensation Plan Information
(a)
(b)
(c)
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
Plan category
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders (3)
Total
6,233,525
474,670
6,708,195
$
$
$
51.56 (2)
4.69 (2)
48.24 (2)
4,402,559
—
4,402,559
(1)
(2)
(3)
Reflects share options and restricted share units issued under the Company’s Amended and Restated Omnibus Incentive
Plan.
Represents the weighted average exercise price of outstanding share awards only.
Reflects share options issued under the Company’s Amended and Restated Stock Option Plan (the “Option Plan”), which
was in effect prior to our initial public offering. As of March 30, 2019, there were no shares available for future issuance
under the Option Plan.
Item 13. Certain Relationships, Related Transactions and Director Independence
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2019, which is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2019, which is
incorporated herein by reference.
56
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this annual report on Form 10-K:
PART IV
1.
The following consolidated financial statements listed below are filed as a separate section of this Annual
Report on Form 10-K:
Report of Independent Registered Public Accounting Firm - Ernst & Young LLP.
Consolidated Balance Sheets as of March 30, 2019 and March 31, 2018.
Consolidated Statements of Operations and Comprehensive Income for the fiscal years ended
March 30, 2019, March 31, 2018 and April 1, 2017.
Consolidated Statements of Shareholders’ Equity for the fiscal years ended March 30, 2019,
March 31, 2018 and April 1, 2017.
Consolidated Statements of Cash Flows for the fiscal years ended March 30, 2019, March 31,
2018 and April 1, 2017.
Notes to Consolidated Financial Statements for the fiscal years ended March 30,
2019, March 31, 2018 and April 1, 2017.
2.
Exhibits:
Exhibit
No.
2.1
2.2
2.3
2.4
3.1
4.1
4.2
4.3
10.1
10.2
EXHIBIT INDEX
Document Description
Share Purchase Agreement dated as of May 31, 2016, by and among Michael Kors (Europe) B.V., Michael Kors (HK)
Limited, Michael Kors Far East Trading Limited and Sportswear Holdings Limited (included as Exhibit 2.1 to the
Company’s Current Report on Form 8-K (File No. 001-35368), filed on June 1, 2016 and incorporated herein by reference).
Cooperation Agreement, dated as of July 25, 2017, by and among Michael Kors Holdings Limited, JAG Acquisitions
(UK) Limited and Jimmy Choo Group Limited (formerly known as Jimmy Choo PLC) (included as Exhibit 2.2 to the
Company's Current Report on Form 8-K (File No. 001-35368), filed on July 25, 2017 and incorporated herein by
reference).
Rule 2.7 Announcement, dated as of July 25, 2017 (included as Exhibit 2.1 to the Company's Current Report on Form
8-K (File No. 001-35368), filed on July 25, 2017 and incorporated herein by reference).
Stock Purchase Agreement, dated as of September 24, 2018, by and among Allegra Donata Versace Beck, Donatella
Versace, Santo Versace, Borgo Luxembourg S.À R.L., Blackstone GPV Capital Partners (Mauritius) VI-D FDI Ltd.,
Blackstone GPV Tactical Partners (Mauritius)-N Ltd. and Capri Holdings Limited (f/k/a Michael Kors Holdings Limited)
(included as Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 001-35368), filed on September 25,
2018 and incorporated herein by reference).
Amended and Restated Memorandum and Articles of Association of Capri Holdings Limited (included as Exhibit 3.1
to the Company’s Current Report on Form 8-K filed on December 31, 2018 and incorporated herein by reference).
Specimen of Ordinary Share Certificate of Capri Holdings Limited.
Shareholders Agreement, dated as of July 11, 2011, among Michael Kors Holdings Limited and certain shareholders of
Michael Kors Holdings Limited (included as Exhibit 10.2 to the Company’s Registration Statement on Form F-1, as
amended (File No. 333-178282), filed on December 2, 2011 and incorporated herein by reference).
Indenture, dated as of October 20, 2017, by and among Michael Kors (USA), Inc., Michael Kors Holdings Limited, the
subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (included as Exhibit 4.1 to the
Company's Current Report on Form 8-K (File No. 001-35368), filed on October 20, 2017 and incorporated herein by
reference).
Third Amended and Restated Credit Agreement dated as of November 15, 2018 among Capri Holdings Limited (f/k/a
Michael Kors Holdings Limited), Michael Kors (USA), Inc., the foreign subsidiary borrowers party thereto, the guarantors
party thereto, the financial institutions party thereto as lenders and issuing banks and JPMorgan Chase Bank, N.A., as
administrative agent (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-35368),
filed on November 16, 2018 and incorporated herein by reference).
Form of Indemnification Agreement between Michael Kors Holdings Limited and its directors and executive officers
(included as Exhibit 10.5 to the Company’s Registration Statement on Form F-1, as amended (File No. 333-178282),
filed on December 2, 2011 and incorporated herein by reference).
57
Exhibit
No.
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Document Description
Amended and Restated Michael Kors (USA), Inc. Stock Option Plan (included as Exhibit 10.4 to the Company’s
Registration Statement on Form F-1, as amended (File No. 333-178282), filed on December 2, 2011 and incorporated
herein by reference).
Amended No. 1 to the Amended and Restated Michael Kors (USA), Inc. Share Option Plan (included as Exhibit 4.9 to
the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2012, filed on June 12, 2012 and
incorporated herein by reference).
Amended and Restated Omnibus Incentive Plan (included as Appendix A to the Company’s Definitive Proxy Statement
on Schedule 14A (File No. 001-35368), filed on June 16, 2015 and incorporated herein by reference).
Third Amended and Restated Employment Agreement, dated as of March 28, 2018, by and among Michael Kors (USA),
Inc., Michael Kors Holdings Limited and Michael Kors (included as Exhibit 10.7 to the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2018, filed on May 30, 2018 and incorporated herein by reference).
Third Amended and Restated Employment Agreement, dated as of March 28, 2018, by and among Michael Kors (USA),
Inc., Michael Kors Holdings Limited and John D. Idol (included as Exhibit 10.8 to the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2018, filed on May 30, 2018 and incorporated herein by reference).
Executive Bonus Program (included as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended June 29, 2013 filed on August 8, 2013 and incorporated herein by reference).
Employment Agreement, dated as of May 12, 2014, by and between Michael Kors (USA), Inc., and Cathy Marie Robison
(included as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014
filed on May 28, 2014 and incorporated herein by reference).
10.10 Employment Agreement, dated as of July 14, 2014, by and between Pascale Meyran and Michael Kors (USA), Inc.
(included as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2015,
filed on May 27, 2015 and incorporated herein by reference).
10.11 Form of Employee Non-Qualified Option Award Agreement (included as Exhibit 10.15 to the Company’s Annual Report
on Form 10-K for the fiscal year ended March 28, 2015, filed on May 27, 2015 and incorporated herein by reference).
10.12 Form of Employee Restricted Share Unit Award Agreement (included as Exhibit 10.16 to the Company’s Annual Report
on Form 10-K for the fiscal year ended March 28, 2015, filed on May 27, 2015 and incorporated herein by reference).
10.13 Form of Performance-Based Restricted Share Unit Award Agreement (included as Exhibit 10.17 to the Company’s Annual
Report on Form 10-K for the fiscal year ended March 28, 2015, filed on May 27, 2015 and incorporated herein by
reference).
10.14 Form of Independent Director Restricted Share Unit Award Agreement (included as Exhibit 10.18 to the Company’s
Annual Report on Form 10-K for the fiscal year ended March 28, 2015, filed on May 27, 2015 and incorporated herein
by reference).
10.15 Aircraft Time Sharing Agreement, dated November 24, 2014, by and between Michael Kors (USA), Inc. and John Idol
(included as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2015,
filed on May 27, 2015 and incorporated herein by reference).
10.16 Aircraft Time Sharing Agreement, dated December 12, 2014, by and between Michael Kors (USA), Inc. and Michael
Kors (included as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 28,
2015, filed on May 27, 2015 and incorporated herein by reference).
10.17 Employment Agreement, dated as of April 17, 2017, by and among Michael Kors (USA), Inc., Michael Kors Holdings
Limited and Thomas J. Edwards, Jr. (including as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the
fiscal year ended April 1, 2017, filed on May 31, 2017 and incorporated herein by reference).
21.1
23.2
31.1
31.2
32.1
32.2
List of subsidiaries of Capri Holdings Limited.
Consent of Ernst & Young LLP.
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.1 Interactive Data Files.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 29, 2019
CAPRI HOLDINGS LIMITED
By:
Name:
Title:
/s/ John D. Idol
John D. Idol
Chairman & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
By:
By:
By:
By:
By:
By:
By:
By:
By:
/s/ John D. Idol
John D. Idol
/s/ Thomas J. Edwards, Jr.
Thomas J. Edwards Jr.
/s/ M. William Benedetto
M. William Benedetto
/s/ Robin Freestone
Robin Freestone
/s/ Judy Gibbons
Judy Gibbons
/s/ Ann Korologos
Ann Korologos
/s/ Stephen F. Reitman
Stephen F. Reitman
/s/ Jane Thompson
Jane Thompson
/s/ Jean Tomlin
Jean Tomlin
Chairman, Chief Executive Officer and Director (Principal Executive
Officer)
May 29, 2019
Chief Financial Officer and Chief Operating Officer (Principal Financial
and Accounting Officer)
May 29, 2019
May 29, 2019
May 29, 2019
May 29, 2019
May 29, 2019
May 29, 2019
May 29, 2019
May 29, 2019
Director
Director
Director
Director
Director
Director
Director
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Capri Holdings Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capri Holdings Limited and subsidiaries (“the Company”)
as of March 30, 2019 and March 31, 2018, and the related consolidated statements of operations and comprehensive income,
shareholders’ equity and cash flows for each of the three years in the period ended March 30, 2019, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material aspects, the financial position of the Company at March 30, 2019 and March 31, 2018, and the results of its operations
and its cash flow for each of the three years in the period ended March 30, 2019, in conformity with the U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of March 30, 2019, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated May 29, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2014
New York, New York
May 29, 2019
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Capri Holdings Limited
Opinion on Internal Control over Financial Reporting
We have audited Capri Holdings Limited and subsidiaries’ internal control over financial reporting as of March 30, 2019,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (“the COSO criteria”). In our opinion, Capri Holdings Limited and subsidiaries (“the
Company”) maintained, in all material respects, effective internal control over financial reporting as of March 30, 2019, based on
the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of
Gianni Versace S.r.l, which is included in the fiscal year 2019 consolidated financial statements of Capri Holdings Limited and
subsidiaries and constituted 9% of total assets, as of March 30, 2019 and 3% of total revenue for the year then ended. Our audit of
internal control over financial reporting of Capri Holdings Limited and subsidiaries’ also did not include an evaluation of the internal
control over financial reporting of Gianni Versace S.r.l.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company as of March 30, 2019 and March 31, 2018, the related consolidated
statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended March 30, 2019, and the related notes and our report dated May 29, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
New York, New York
May 29, 2019
61
CAPRI HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
$
$
$
Assets
Current assets
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets
Other assets
Total assets
Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity
Current liabilities
Accounts payable
Accrued payroll and payroll related expenses
Accrued income taxes
Short-term debt
Accrued expenses and other current liabilities
Total current liabilities
Deferred rent
Deferred tax liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Commitments and contingencies
Redeemable noncontrolling interest
Shareholders’ equity
Ordinary shares, no par value; 650,000,000 shares authorized; 216,050,939 shares
issued and 150,932,306 outstanding at March 30, 2019; 210,991,091 shares issued
and 149,698,407 outstanding at March 31, 2018
Treasury shares, at cost (65,118,633 shares at March 30, 2019 and 61,292,684 shares
at March 31, 2018)
Additional paid-in capital
Accumulated other comprehensive (loss) income
Retained earnings
Total shareholders’ equity of Capri
Noncontrolling interest
Total shareholders’ equity
March 30,
2019
March 31,
2018
$
172
383
953
221
1,729
615
2,293
1,659
112
242
163
290
661
148
1,262
583
1,236
848
56
74
6,650
$
4,059
$
371
133
34
630
374
1,542
132
438
1,936
166
4,214
4
—
(3,223)
1,011
(66)
4,707
2,429
3
2,432
294
93
78
200
295
960
128
186
675
88
2,037
—
—
(3,016)
831
51
4,152
2,018
4
2,022
4,059
Total liabilities and shareholders’ equity
$
6,650
$
See accompanying notes to consolidated financial statements.
62
CAPRI HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In millions, except share and per share data)
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
$
5,238
$
4,719
$
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Restructuring and other charges (1)
Total operating expenses
Income from operations
Other income, net
Interest expense, net
Foreign currency loss (gain)
Income before provision for income taxes
Provision for income taxes
Net income
Less: Net loss attributable to noncontrolling interest and
redeemable noncontrolling interest
Net income attributable to Capri
Weighted average ordinary shares outstanding:
Basic
Diluted
Net income per ordinary share attributable to Capri:
Basic
Diluted
Statements of Comprehensive Income:
Net income
Foreign currency translation adjustments
Net gain (loss) on derivatives
Comprehensive income
Less: Net loss attributable to noncontrolling interest and
redeemable noncontrolling interest
Comprehensive income attributable to Capri
2,058
3,180
2,075
225
21
124
2,445
735
(4)
38
80
621
79
542
1,860
2,859
1,767
208
33
102
2,110
749
(2)
22
(13)
742
150
592
(1)
543
$
—
592
$
4,494
1,833
2,661
1,541
220
199
11
1,971
690
(6)
4
3
689
137
552
(1)
553
$
$
$
$
$
149,765,468
151,614,350
152,283,586
155,102,885
165,986,733
168,123,813
$
$
$
3.62
3.58
542
(134)
17
425
(1)
426
$
3.89
3.82
$
$
592
$
148
(16)
724
—
724
$
3.33
3.29
552
(9)
9
552
(1)
553
(1) Restructuring and other charges includes store closure costs recorded in connection with the Michael Kors Retail Fleet Optimization Plan
(as defined in Note 10) and other restructuring initiatives, and transaction and transition costs recorded in connection with the acquisitions
of Gianni Versace S.r.l, Jimmy Choo Group Limited and Michael Kors (HK) Limited and Subsidiaries (see Note 4 and Note 10).
See accompanying notes to consolidated financial statements.
63
CAPRI HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except share data which is in thousands)
Ordinary Shares
Shares
Amounts
Additional
Paid-in
Capital
Treasury Shares
Shares
Amounts
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Total
Equity of
Capri
Non-
controlling
Interests
Total
Equity
Balance at April 2, 2016
208,084
$
— $
719
(31,642) $ (1,650) $
(81) $
3,007
$
1,995
$
4
$
1,999
Net income (loss)
Other comprehensive income (loss)
Total comprehensive income (loss)
Vesting of restricted awards, net of
forfeitures
Exercise of employee share options
Equity compensation expense
Tax benefits on exercise of share
options
Purchase of treasury shares
—
—
—
454
794
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8
34
7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (21,857)
(1,005)
—
—
—
—
—
—
—
—
553
—
—
—
—
—
—
—
553
—
553
—
8
34
7
(1,005)
Balance at April 1, 2017
209,332
$
— $
768
(53,499) $ (2,655) $
(81) $
3,560
$
1,592
$
Net income
Other comprehensive income
Total comprehensive income
Non-controlling interest of Jimmy
Choo joint ventures
Partial repurchase of non-
controlling interest
Vesting of restricted awards, net of
forfeitures
—
—
—
—
—
542
Exercise of employee share options
1,117
Equity compensation expense
Purchase of treasury shares
Redemption of capital/dividends
Other
Balance at March 31, 2018, as
previously reported
Adoption of accounting standards
(See Note 2)
Balance as of April 1, 2018
Net income (loss)
Other comprehensive loss
Total comprehensive income (loss)
Issuance of ordinary shares
Vesting of restricted awards, net of
forfeitures
—
—
—
—
—
210,991
—
—
—
2,395
818
Exercise of employee share options
1,847
Equity compensation expense
Purchase of treasury shares
Increase in noncontrolling interest
Other
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14
50
—
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7,794)
(361)
—
—
—
—
—
132
—
—
—
—
—
—
—
—
—
592
—
—
—
—
—
—
—
—
—
—
592
132
724
—
—
—
14
50
(361)
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
831
—
—
(61,293)
(3,016)
—
—
—
91
—
29
60
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,826)
(207)
—
—
—
—
—
51
—
(117)
—
—
—
—
—
—
—
—
12
4,164
543
—
—
—
—
—
—
—
—
—
12
2,030
543
(117)
426
91
—
29
60
(207)
—
—
Balance at March 30, 2019
216,051
$
— $
1,011
(65,119) $ (3,223) $
(66) $
4,707
$
2,429
$
See accompanying notes to consolidated financial statements.
64
(1)
—
(1)
—
—
—
—
—
3
—
—
—
3
(1)
—
—
—
—
(1)
—
552
—
552
—
8
34
7
(1,005)
$
1,595
592
132
724
3
(1)
—
14
50
(361)
(1)
(1)
—
4
(1)
—
(1)
—
—
—
—
—
—
—
3
12
2,034
542
(117)
425
91
—
29
60
(207)
—
—
$
2,432
210,991
$
— $
831
(61,293) $ (3,016) $
51
$
4,152
$
2,018
$
4
$
2,022
CAPRI HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
$
542
$
592
$
activities:
Depreciation and amortization
Equity compensation expense
Impairment of long-lived assets
Losses on store lease exits
Deferred income taxes
Amortization of deferred financing costs
Tax benefits on exercise of share options
Foreign currency losses (gains)
Other non-cash charges
Change in assets and liabilities:
Receivables, net
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other current liabilities
Other long-term assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Purchase of intangible assets
Cash paid for business acquisitions, net of cash acquired
Realized (loss) gain on hedge related to acquisitions
Settlement of a net investment hedge
Net cash used in investing activities
Cash flows from financing activities
Debt borrowings
Debt repayments
Debt issuance costs
Repurchase of treasury shares
Exercise of employee share options
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Beginning of period
End of period (including restricted cash of $2 million at April 1, 2017)
Supplemental disclosures of cash flow information
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of non-cash investing and financing
activities
Accrued capital expenditures
$
$
$
$
225
60
21
18
(71)
4
(24)
80
4
(23)
(125)
(31)
(48)
20
42
694
(181)
(3)
(1,875)
(77)
11
(2,125)
4,204
(2,560)
(15)
(207)
29
1,451
(11)
9
163
172
45
172
$
$
$
208
50
33
29
9
4
(7)
(13)
—
19
46
49
(21)
56
8
1,062
(120)
(3)
(1,415)
5
—
(1,533)
2,520
(1,784)
—
(361)
14
389
15
(67)
230
163
11
104
$
$
$
25
$
26
$
552
220
34
199
—
(60)
1
(7)
3
12
60
21
(1)
37
(54)
18
1,035
(165)
(5)
(481)
—
—
(651)
1,240
(1,093)
—
(1,005)
8
(850)
(6)
(472)
702
230
4
171
23
See accompanying notes to consolidated financial statements.
65
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
The Company was incorporated in the British Virgin Islands (“BVI”) on December 13, 2002 as Michael Kors Holdings
Limited and changed its name to Capri Holdings Limited (“Capri,” and together with its subsidiaries, the “Company”) on December
31, 2018. The Company is a holding company that owns brands that are leading designers, marketers, distributors and retailers of
branded women’s and men’s accessories, apparel and footwear bearing the Versace, Jimmy Choo and Michael Kors tradenames
and related trademarks and logos. Prior to the fourth quarter of Fiscal 2019, the Company organized its business into four reportable
segments: MK Retail, MK Wholesale, MK Licensing and Jimmy Choo. As a result of the acquisition of Versace, effective beginning
in the fourth quarter of Fiscal 2019, the Company realigned its reportable segments according to the new structure of its business.
As a result, the Company now operates in three reportable segments: Versace, Jimmy Choo and Michael Kors. See Note 20 for
additional information.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned or controlled subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation. The Company’s audited consolidated
financial statements include the following operations for the periods from the respective acquisition/consolidation date through
March 30, 2019:
•
•
•
Gianni Versace S.r.l. (“Versace”), acquired on December 31, 2018;
Jimmy Choo Group Limited (“Jimmy Choo”), acquired on November 1, 2017;
the previously licensed business in the Greater China region, Michael Kors (HK) Limited and Subsidiaries (“MKHKL”)
with operations in China, Hong Kong, Macau and Taiwan, which was acquired on May 31, 2016;
See Note 4 for additional information related to the above acquisitions.
The Company utilizes a 52 to 53 week fiscal year ending on the Saturday closest to March 31. As such, the fiscal years
ending on March 30, 2019, March 31, 2018, and April 1, 2017 (“Fiscal 2019”, “Fiscal 2018” and “Fiscal 2017”, respectively)
contain 52 weeks.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to use judgment and make
estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. The level of uncertainty
in estimates and assumptions increases with the length of time until the underlying transactions are completed. The most significant
assumptions and estimates involved in preparing the financial statements include allowances for customer deductions, sales returns,
sales discounts and doubtful accounts, estimates related to the Company’s customer loyalty program for Michael Kors, estimates
of gift card breakage, estimates of inventory recovery, the valuation of share-based compensation, valuation of deferred taxes and
the valuation of and the estimated useful lives used for amortization and depreciation of intangible assets and property and
equipment. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current
period’s presentation, including the realignment of the Company’s segment reporting structure, as further described in Note 20.
Seasonality
The Company experiences certain effects of seasonality with respect to its business. The Company generally experiences
greater sales during its third fiscal quarter, primarily driven by holiday season sales, and the lowest sales during its first fiscal
quarter.
66
Revenue Recognition
The Company accounts for contracts with its customers when there is approval and commitment from both parties, the
rights of the parties and payment terms have been identified, the contract has commercial substance and collectability of
consideration is probable. Revenue is recognized when control of the promised goods or services is transferred to the Company's
customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services.
The Company recognizes retail store revenues when control of the product is transferred at the point of sale at Company owned
stores, including concessions, net of estimated returns. Revenue from sales through the Company’s e-commerce sites is recognized
at the time of delivery to the customer, reduced by an estimate of returns. Wholesale revenue is recognized net of estimates for
sales returns, discounts, markdowns and allowances, after merchandise is shipped and control of the underlying product is
transferred to the Company’s wholesale customers. To arrive at net sales for retail, gross sales are reduced by actual customer
returns as well as by a provision for estimated future customer returns, which is based on management’s review of historical and
current customer returns. Sales taxes collected from retail customers are presented on a net basis and, as such, are excluded from
revenue. To arrive at net sales for wholesale, gross sales are reduced by provisions for estimated future returns, based on current
expectations, as well as trade discounts, markdowns, allowances, operational chargebacks, and certain cooperative selling expenses.
These estimates are based on such factors as historical trends, actual and forecasted performance, and current market conditions,
which are reviewed by management on a quarterly basis.
The following table details the activity and balances of the Company’s sales reserves for the fiscal years ended March 30,
2019, March 31, 2018, and April 1, 2017 (in millions):
Retail
Return Reserves:
Fiscal year ended March 30, 2019
Fiscal year ended March 31, 2018
Fiscal year ended April 1, 2017
Wholesale
Total Sales Reserves:
Fiscal year ended March 30, 2019
Fiscal year ended March 31, 2018
Fiscal year ended April 1, 2017
Balance
Beginning
of Year
Amounts
Charged to
Revenue
Write-offs
Against
Reserves
Balance
at
Year End
$
$
12
7
5
Balance
Beginning
of Year
109
97
111
$
$
226
161
102
Amounts
Charged to
Revenue
262
258
271
$
$
(223)
(156)
(100)
Write-offs
Against
Reserves
(259)
(246)
(285)
$
$
15
12
7
Balance
at
Year End
112
109
97
Royalty revenue generated from product licenses, which includes contributions for advertising, is based on reported sales
of licensed products bearing the Company’s trademarks at rates specified in the license agreements. These agreements are also
subject to contractual minimum levels. Royalty revenue generated by geographic licensing agreements is recognized as it is earned
under the licensing agreements based on reported sales of licensees applicable to specified periods, as outlined in the agreements.
These agreements allow for the use of the Company’s tradenames to sell its branded products in specific geographic regions.
Loyalty Program
The Company has a Michael Kors customer loyalty program, which allows customers to earn points on qualifying purchases
toward monetary and non-monetary rewards that may be redeemed for purchases at the Company’s retail stores and e-commerce
site. The Company allocates a portion of the initial sales transaction based on the estimated relative fair value of the benefits using
statistical formulas based on projected timing of future redemptions and historical activity. These amounts include estimated
“breakage” for points that are not expected to be redeemed. The contract liability, net of an estimated “breakage,” is recorded as
a reduction to revenue in the consolidated statements of income and comprehensive income and within accrued expenses and other
current liabilities in the Company’s consolidated balance sheets. See Note 3 for additional information.
Advertising and Marketing Costs
Advertising and marketing costs are expensed over the period of benefit and are recorded in general and administrative
expenses. Advertising and marketing expense was $158 million, $167 million and $119 million in Fiscal 2019, Fiscal 2018 and
Fiscal 2017, respectively.
67
Cooperative advertising expense, which represents the Company’s participation in advertising expenses of its wholesale
customers, is reflected as a reduction of net sales. Expenses related to cooperative advertising for Fiscal 2019, Fiscal 2018 and
Fiscal 2017, were $8 million, $6 million and $5 million, respectively.
Shipping and Handling
Freight-in expenses are recorded as part of cost of goods sold, along with product costs and other costs to acquire inventory.
The costs of preparing products for sale, including warehousing expenses, are included in selling, general and administrative
expenses. Selling, general and administrative expenses also include the costs of shipping products to the Company’s e-commerce
customers. Shipping and handling costs included within selling, general and administrative expenses in the Company’s consolidated
statements of operations and comprehensive income were $132 million, $129 million and $126 million for Fiscal 2019, Fiscal
2018 and Fiscal 2017, respectively. Shipping and handling costs charged to customers are included in total revenue.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Included
in the Company’s cash and cash equivalents as of March 30, 2019 and March 31, 2018 are credit card receivables of $24 million(cid:3)
and $21 million, respectively, which generally settle within two to three business days.
Inventories
Inventories mainly consist of finished goods with the exception of raw materials inventory of $25 million and $1 million,
respectively, recorded on the Company’s consolidated balance sheets as of March 30, 2019 and March 31, 2018. Inventories are
stated at the lower of cost or net realizable value. Cost is determined using the weighted-average cost method. Costs include
amounts paid to independent manufacturers, plus duties and freight to bring the goods to the Company’s warehouses, which are
located in the United States, Canada, the Netherlands, Switzerland, Italy, United Kingdom, the United Arab Emirates, China,
Japan, Hong Kong and South Korea, as well as shipments to stores. The Company continuously evaluates the composition of its
inventory and makes adjustments when the cost of inventory is not expected to be fully recoverable. The net realizable value of
the Company’s inventory is estimated based on historical experience, current and forecasted demand, and market conditions. In
addition, reserves for inventory losses are estimated based on historical experience and physical inventory counts. The Company’s
inventory reserves are estimates, which could vary significantly from actual results if future economic conditions, customer demand
or competition differ from expectations. Our historical estimates of these adjustments have not differed materially from actual
results.
Store Pre-opening Costs
Costs associated with the opening of new retail stores and start up activities, are expensed as incurred.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization (carrying value). Depreciation is
recorded on a straight-line basis over the expected remaining useful lives of the related assets. Equipment, furniture and fixtures,
are depreciated over five to seven years, computer hardware and software are depreciated over three to five years. The Company’s
share of the cost of constructing in-store shop displays within its wholesale customers’ floor-space (“shop-in-shops”), which is
paid directly to third-party suppliers, is capitalized as property and equipment and is generally amortized over a useful life of three(cid:3)
to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated remaining
useful lives of the related assets or the remaining lease term, including highly probable renewal periods. The Company includes
all depreciation and amortization expense as a component of total operating expenses, as the underlying long-lived assets are not
directly or indirectly related to bringing the Company’s products to their existing location and condition. Maintenance and repairs
are charged to expense in the year incurred.
The Company capitalizes, in property and equipment, direct costs incurred during the application development stage and
the implementation stage for developing, purchasing or otherwise acquiring software for its internal use. These costs are amortized
over the estimated useful lives of the software, generally five years. All costs incurred during the preliminary project stage, including
project scoping and identification and testing of alternatives, are expensed as incurred.
68
Definite-Lived Intangible Assets
The Company’s definite-lived intangible assets consist of trademarks, lease rights and customer relationships and are stated
at cost less accumulated amortization. The Company’s customer relationships are amortized over five to eighteen years, and lease
rights are amortized over the terms of the related lease agreements, including highly probable renewal periods, on a straight-line
basis. Reacquired rights recorded in connection with the acquisition of MKHKL are amortized through March 31, 2041, the original
expiration date of the Michael Kors license agreement in the Greater China region. The trademark for the Michael Kors brand is
amortized over twenty years.
Impairment of Long-lived Assets
The Company evaluates its long-lived assets, including fixed assets and definite-lived intangible assets, for impairment
whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The
Company’s impairment testing is based on its best estimate of its future operating cash flows. If the sum of estimated undiscounted
future cash flows associated with the asset is less than the asset’s carrying value, an impairment charge is recognized, which is
measured as the amount by which the carrying value exceeds the fair value of the asset. These estimates of cash flow require
significant management judgment and certain assumptions about future volume, sales and expense growth rates, devaluation and
inflation. As such, these estimates may differ from actual cash flows.
Goodwill and Other Indefinite-lived Intangible Assets
The Company records intangible assets based on their fair value on the date of acquisition. Goodwill is recorded for the
difference between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible
assets acquired. The brand intangible asset recorded in connection with the acquisitions of Versace and Jimmy Choo were determined
to be indefinite-lived intangible assets, which are not subject to amortization. The Company performs an impairment assessment
of goodwill, as well as the Versace and Jimmy Choo brand intangible assets on an annual basis, or whenever impairment indicators
exist. In the absence of any impairment indicators, goodwill, the Versace brand and the Jimmy Choo brand are assessed for
impairment during the fourth quarter of each fiscal year. Judgments regarding the existence of impairment indicators are based
on market conditions and operational performance of the business.
The Company may assess its goodwill and its brand indefinite-lived intangible assets for impairment initially using a
qualitative approach to determine whether it is more likely than not that the fair value of these assets is greater than their carrying
value. When performing a qualitative test, the Company assesses various factors including industry and market conditions,
macroeconomic conditions and performance of the Company’s businesses. If the results of the qualitative assessment indicate that
it is more likely than not that the Company’s goodwill and other indefinite-lived intangible assets are impaired, a quantitative
impairment analysis would be performed to determine if impairment is required. The Company may also elect to perform a
quantitative analysis of goodwill and its indefinite-lived intangible assets initially rather than using a qualitative approach.
The impairment testing for goodwill is performed at the reporting unit level. The valuation methods used in the quantitative
fair value assessment, discounted cash flow and market multiples method, require the Company’s management to make certain
assumptions and estimates regarding certain industry trends and future profitability of the Company’s reporting units. If the fair
value of a reporting unit exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no
further testing is performed. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the
difference. The valuation of goodwill is affected by, among other things, the Company’s business plan for the future and estimated
results of future operations. Future events could cause the Company to conclude that impairment indicators exist, and, therefore,
that goodwill may be impaired.
When performing a quantitative impairment assessment of the Company’s brand indefinite-lived intangible assets, the fair
value of the Versace and the Jimmy Choo brands is estimated using a discounted cash flow analysis based on the "relief from
royalty" method, assuming that a third party would be willing to pay a royalty in lieu of ownership for this intangible asset. This
approach is dependent on many factors, including estimates of future growth, royalty rates, and discount rates. Actual future results
may differ from these estimates. Impairment loss is recognized when the estimated fair value of the indefinite-lived brand intangible
assets is less than its carrying amount.
There were no impairment charges related to goodwill and other indefinite-lived intangible assets in any of the fiscal periods
presented. See Note 13 for information relating to the Company’s annual impairment analysis performed during the fourth quarter
of Fiscal 2019.
69
Insurance
The Company uses a combination of insurance and self-insurance for losses related to a number of risks, including workers’
compensation and employee-related health care benefits. The Company also maintains stop-loss coverage with third-party insurers
to limit its exposure arising from claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon
management’s estimates of the discounted cost for self-insured claims incurred using actuarial assumptions, historical loss
experience, actual payroll and other data. Although the Company believes that it can reasonably estimate losses related to these
claims, actual results could differ from these estimates.
The Company also maintains other types of customary business insurance policies, including business interruption insurance.
Insurance recoveries represent gain contingencies and are recorded upon actual settlement with the insurance carrier.
Share-based Compensation
The Company grants share-based awards to certain employees and directors of the Company. The grant date fair value of
share options is calculated using the Black-Scholes option pricing model. Beginning in Fiscal 2018, the Company began using its
own historical experience in determining the expected holding period and volatility of its time-based share option awards. In prior
periods, the Company used the simplified method for determining the expected life of its options and average volatility rates of
similar actively traded companies over the estimated holding period, due to insufficient historical option exercise experience as
a public company. The risk-free interest rate is derived from the zero-coupon United States (“U.S.”) Treasury Strips yield curve
based on the grant’s estimated holding period. Determining the grant date fair value of share-based awards requires considerable
judgment, including estimating expected volatility, expected term and risk-free rate. If factors change and the Company employs
different assumptions, the fair value of future awards and the resulting share-based compensation expense may differ significantly
from what the Company has estimated in the past.
The closing market price of the Company’s shares on the date of grant is used to determine the grant date fair value of
restricted shares, time-based restricted shares units (“RSU”s) and performance-based RSUs. These fair values are recognized as
expense over the requisite service period, net of estimated forfeitures, based on expected attainment of pre-established performance
goals for performance grants, or the passage of time for those grants which have only time-based vesting requirements.
Foreign Currency Translation and Transactions
The financial statements of the majority of the Company’s foreign subsidiaries are measured using the local currency as
the functional currency. The Company’s functional currency is the United States Dollar (“USD”) for Capri and its United States
based subsidiaries. Assets and liabilities are translated using period-end exchange rates, while revenues and expenses are translated
using average exchange rates over the reporting period. The resulting translation adjustments are recorded separately in
shareholders’ equity as a component of accumulated other comprehensive income (loss). Foreign currency income and losses
resulting from the re-measuring of transactions denominated in a currency other than the functional currency of a particular entity
are included in foreign currency (gain) loss on the Company’s consolidated statements of operations and comprehensive income.
Derivative Financial Instruments
Forward Foreign Currency Exchange Contracts
The Company uses forward currency exchange contracts to manage its exposure to fluctuations in foreign currency for
certain transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to
minimize risks related to these transactions. The Company employs these forward currency contracts to hedge the Company’s
cash flows, as they relate to foreign currency transactions. Certain of these contracts are designated as hedges for accounting
purposes, while others remain undesignated. All of the Company’s derivative instruments are recorded in the Company’s
consolidated balance sheets at fair value on a gross basis, regardless of their hedge designation.
In connection with the September 24, 2018 definitive agreement to acquire all of the outstanding shares of Versace, the
Company entered into forward foreign currency exchange contracts with notional amounts totaling €1.680 billion (approximately
$2.001 billion) to mitigate its foreign currency exchange risk through the expected closing date of the acquisition, which were
settled on December 21, 2018. Likewise, in connection with the July 25, 2017 cash offer to acquire Jimmy Choo, the Company
entered into a forward foreign currency exchange contract with a notional amount of £1.115 billion (approximately $1.469 billion)
to mitigate its foreign currency exchange risk through the expected closing date of the acquisition, which was settled on October
30, 2017. These derivative contracts were not designated as accounting hedges. Therefore, changes in fair value are recorded to
foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income. The Company’s
accounting policy is to classify cash flows from derivative instruments in the same category as the cash flows from the items being
70
hedged. Accordingly, the Company classified $77 million of realized losses and $5 million of realized gains, respectively, relating
to these derivative instruments within cash flows from investing activities during Fiscal 2019 and Fiscal 2018.
The Company designates certain contracts related to the purchase of inventory that qualify for hedge accounting as cash
flow hedges. Formal hedge documentation is prepared for all derivative instruments designated as hedges, including description
of the hedged item and the hedging instrument and the risk being hedged. The changes in the fair value for contracts designated
as cash flow hedges is recorded in equity as a component of accumulated other comprehensive income (loss) until the hedged
item affects earnings. When the inventory related to forecasted inventory purchases that are being hedged is sold to a third party,
the gains or losses deferred in accumulated other comprehensive income (loss) are recognized within cost of goods sold. The
Company uses regression analysis to assess effectiveness of derivative instruments that are designated as hedges, which compares
the change in the fair value of the derivative instrument to the change in the related hedged item. If the hedge is no longer expected
to be highly effective in the future, future changes in the fair value are recognized in earnings. For those contracts that are not
designated as hedges, changes in the fair value are recorded to foreign currency (gain) loss in the Company’s consolidated statements
of operations and comprehensive income. The Company classifies cash flows relating to its forward foreign currency exchange
contracts related to purchase of inventory consistently with the classification of the hedged item, within cash flows from operating
activities.
The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations.
In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions
based upon their credit ratings and certain other financial factors, adhering to established limits for credit exposure. The
aforementioned forward contracts generally have a term of no more than 12 months. The period of these contracts is directly
related to the foreign transaction they are intended to hedge.
Net Investment Hedges
The Company also uses fixed-to-fixed cross currency swap agreements to hedge its net investments in foreign operations
against future volatility in the exchange rates between its U.S. Dollars and these foreign currencies. The Company has elected the
spot method of designating these contracts under ASU 2017-12, as defined below, and has designated these contracts as net
investment hedges. The net gain or loss on net investment hedged is reported within foreign currency translation gains and losses
(“CTA”), as a component of accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets.
Interest accruals and coupon payments are recognized directly in interest expense in the Company’s statement of operations and
comprehensive income. Upon discontinuation of a hedge, all previously recognized amounts remain in CTA until the hedged net
investment is sold, diluted, or liquidated.
Income Taxes
Deferred income tax assets and liabilities have been provided for temporary differences between the tax bases and financial
reporting bases of the Company’s assets and liabilities using the tax rates and laws in effect for the periods in which the differences
are expected to reverse. The Company periodically assesses the realizability of deferred tax assets and the adequacy of deferred
tax liabilities, based on the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.
Realization of deferred tax assets associated with net operating loss and tax credit carryforwards is dependent upon generating
sufficient taxable income prior to their expiration in the applicable tax jurisdiction. The Company periodically reviews the
recoverability of its deferred tax assets and provides valuation allowances, as deemed necessary, to reduce deferred tax assets to
amounts that more-likely-than-not will be realized. The Company’s management considers many factors when assessing the
likelihood of future realization of deferred tax assets, including recent earnings results within various taxing jurisdictions,
expectations of future taxable income, the carryforward periods remaining and other factors. Changes in the required valuation
allowance are recorded in income in the period such determination is made. Deferred tax assets could be reduced in the future if
the Company’s estimates of taxable income during the carryforward period are significantly reduced or alternative tax strategies
are no longer viable.
The Company recognizes the impact of an uncertain income tax position taken on its income tax returns at the largest
amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position
will be recognized if it has less than a 50% likelihood of being sustained. The tax positions are analyzed periodically (at least
quarterly) and adjustments are made as events occur that warrant adjustments for those positions. The Company records interest
expense and penalties payable to relevant tax authorities as income tax expense.
71
Rent Expense, Deferred Rent and Landlord Construction Allowances
The Company leases office space, retail stores and distribution facilities under agreements that are classified as operating
leases. Many of these operating leases include contingent rent provisions (percentage rent), and/or provide for certain landlord
allowances related to tenant improvements and other relevant items. The recognition of rent expense for an operating lease
commences on the earlier of the related lease commencement date or the date of possession of the property. Rent expense is
calculated by recognizing total minimum rental payments (net of any rental abatements, construction allowances and other rental
concessions) on a straight-line basis over the lease term. The difference between straight-line rent expense and rent paid is recorded
as deferred rent, which is classified within short-term and long-term liabilities in the Company’s consolidated balance sheets. The
Company accounts for landlord allowances and incentives as a component of deferred rent, which is amortized over the lease term
as a reduction of rent expense. The Company records rent expense as a component of selling, general and administrative expenses.
Debt Issuance Costs and Unamortized Discounts
The Company defers debt issuance costs directly associated with acquiring third party financing. These debt issuance costs
and any discounts on issued debt are amortized on a straight-line basis, which approximates the effective interest method, as
interest expense over the term of the related indebtedness. Deferred financing fees associated with the Company’s revolving credit
facilities are recorded within prepaid expenses and other current assets. Deferred financing fees and unamortized discounts
associated with the Company’s other borrowings are recorded as an offset to long-term debt in the Company’s consolidated balance
sheets. See Note 11 for additional information.
Net Income per Share
The Company’s basic net income per ordinary share is calculated by dividing net income by the weighted average number
of ordinary shares outstanding during the period. Diluted net income per ordinary share reflects the potential dilution that would
occur if share option grants or any other potentially dilutive instruments, including RSUs, were exercised or converted into ordinary
shares. These potentially dilutive securities are included in diluted shares to the extent they are dilutive under the treasury stock
method for the applicable periods. Performance-based RSUs are included in diluted shares if the related performance conditions
are considered satisfied as of the end of the reporting period and to the extent they are dilutive under the treasury stock method.
The components of the calculation of basic net income per ordinary share and diluted net income per ordinary share are as
follows (in millions, except share and per share data):
Numerator:
Net income attributable to Capri
Denominator:
Basic weighted average shares
Weighted average dilutive share equivalents:
Share options and restricted shares/units, and performance
restricted share units
Diluted weighted average shares
Basic net income per share (1)
Diluted net income per share (1)
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
$
543
$
592
$
553
149,765,468
152,283,586
165,986,733
1,848,882
151,614,350
3.62
3.58
$
$
2,819,299
155,102,885
3.89
3.82
$
$
2,137,080
168,123,813
3.33
3.29
$
$
________________________________
(1) Basic and diluted net income per share are calculated using unrounded numbers.
Share equivalents for 1,409,415 shares, 1,662,889 shares and 2,034,658 shares, for Fiscal 2019, Fiscal 2018 and Fiscal
2017, respectively, have been excluded from the above calculation due to their anti-dilutive effect.
72
Noncontrolling Interest and Redeemable Noncontrolling Interest
The Company has an ownership interest in the Michael Kors Latin American joint venture, MK (Panama) Holdings, S.A.
and subsidiaries of 75%, an ownership interest in the Jimmy Choo EMEA Joint Ventures, JC Industry S.r.L of 33% and JC Gulf
Trading LLC of 49%, as well as a 50% ownership interest in J. Choo Russia J.V. Limited, and 70% ownership interest in Versace
Singapore Pte. Ltd. and 70% ownership interest in Versace Korea Co. Ltd. As such, noncontrolling interest includes the portion
of the equity ownership, which is not attributable to the Company.
In addition, the Company owns a 70% interest in Versace Australia PTY Limited (“Versace Australia”) and consolidates
Versace Australia in its consolidated financial statements.
The shareholders agreement governing Versace Australia (the “Shareholders Agreement”) contains a put option under which
the Company may be required to purchase its partner’s interest in the the joint venture, as well as call options requiring the partner
to sell its interest to the Company, based on the EBITDA multiple defined in the related agreement. The contractual formula value
of the redeemable non-controlling interest (“RNCI”) as of March 30, 2019 was $4 million. The carrying amount of the RNCI is
adjusted to the redemption amount at the end of each reporting period, after attribution of net income or loss of the RNCI and is
recognized in earnings, since it is probable that the RNCI will become redeemable in the future based on the passage of time.
Recently Adopted Accounting Pronouncements
Hedge Accounting
On August 28, 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities.” The new standard is intended to improve and simplify rules relating to hedge accounting,
including the elimination of periodic hedge ineffectiveness, recognition and presentation of components excluded from hedge
effectiveness assessment, the ability to elect to perform subsequent effectiveness assessments qualitatively, and other provisions
designed to provide more transparency around the economics of a company’s hedging strategy. ASU 2017-12 is effective for the
Company in Fiscal 2020, with early adoption permitted. The Company adopted ASU 2017-12 during the three months ended June
30, 2018, which resulted in an immaterial net increase to opening retained earnings as of April 1, 2018, due to the elimination of
ineffectiveness for cash flow hedges in effect as of the date of adoption. The Company has applied the spot method of designating
its net investment hedges, which were executed during Fiscal 2019.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides new
guidance for revenues recognized from contracts with customers, requiring that revenue is recognized at an amount the Company
is entitled to upon transferring control of goods or services to customers, as opposed to when risks and rewards transfer to a
customer. In July 2015, ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,”
deferred the effective date of ASU 2014-09 by one year, to interim reporting periods within the annual reporting period beginning
after December 15, 2017, or the first quarter of the Company’s Fiscal 2019. This standard may be applied retrospectively to all
prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption (“modified
retrospective method”).
The FASB issued several additional ASUs to provide implementation guidance on ASU 2014-09, including ASU 2016-20,
“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” in December 2016; ASU
2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” in May
2016; ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”(cid:3)
in April 2016; and ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)” in March 2016. The Company considered this guidance in evaluating the impact of ASU
2014-09 (collectively, “ASC 606”).
73
On April 1, 2018, the Company adopted ASC 606 using the modified retrospective method and recognized the $7 million(cid:3)
(net of a tax of $2 million) cumulative effect of adoption as an adjustment to the opening balance of retained earnings. The below
table details the components of the cumulative adjustment recorded on April 1, 2018 (in millions):
March 31, 2018
As Reported under
ASC 605
ASC 606
Adjustments
April 1, 2018
As Reported Under
ASC 606
Receivables, net
$
Accrued expenses and other current liabilities
Deferred tax liabilities
Retained earnings
$
290
296
186
4,152
4 (1) $
(5) (2)
2 (3)
7
294
291
188
4,159
(1)
Includes a $4 million adjustment related to product licensing revenue, which was previously recorded on a one-month
lag and an immaterial amount of guaranteed advertising minimums recognized by product licensees on a straight-line
basis over the contract year.
(2) Relates to recognition of breakage revenue associated with gift card liabilities not subject to escheatment.
(3) Relates to income tax effect of the above adjustments.
In addition, while the Company has previously recorded the right of return asset and liability on a gross basis, in connection
with its adoption of ASC 606, it has reclassified the return liability of $15 million from receivables, net to accrued expenses and
other current liabilities in its consolidated balance sheet as of March 30, 2019. Otherwise, the adoption of this standard did not
have a material impact on the Company's consolidated financial statements for Fiscal 2019, or any individual line items therein.
See Note 3 for additional disclosures related to the Company’s revenue recognition accounting policy.
Share-Based Compensation
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification
Accounting”, which simplifies modification accounting for entities that change the terms or conditions of share-based awards.
ASU 2017-09 was adopted during the first quarter of Fiscal 2019, as required, on a prospective basis. The adoption of this standard
did not have an impact on the Company's consolidated financial statements. The Company will apply ASU 2017-09 to any future
changes to the terms and conditions of its share-based compensation awards.
Income Taxes
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory”, which requires recognition of income tax consequences of an intra-entity transfer of an asset other than inventory
when the transfer occurs. The Company adopted ASU 2016-16 in the beginning of Fiscal 2019, as required, using the modified
retrospective method. On April 1, 2018, the Company recorded the $5 million cumulative effect of adoption as an adjustment to
the opening balance of retained earnings.
Recently Issued Accounting Pronouncements
The Company has considered all new accounting pronouncements and, other than the recent pronouncements discussed
below, have concluded that there are no new pronouncements that may have a material impact on the Company’s results of
operations, financial condition or cash flows based on current information.
Lease Accounting
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize a lease liability
and a right-to-use asset on the balance sheet for all leases, except certain short-term leases. ASU 2016-02 is effective beginning
with the Company’s Fiscal 2020, with early adoption permitted. The Company plans to apply the package of three practical
expedients, allowing it to carry forward its previous lease classification and embedded lease evaluations and not to reassess initial
direct costs as of the date of adoption, as well as the practical expedient allowing it to combine lease and non-lease components.
The Company also plans on adopting the practical expedient from ASU 2018-11, “Leases (Topic 842): Targeted Improvements,”
allowing it to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption
without restating the comparative prior year periods. The Company's existing lease obligations, which relate to stores, corporate
locations, warehouses, and equipment, will be subject to the new standard and will result in recording a lease liability and right-
74
of-use asset for operating leases on the Company's consolidated balance sheet. While the implementation of ASU 2016-02 for the
Company's Michael Kors and Jimmy Choo brands is substantially complete, due to the recent acquisition of Versace on December
31, 2018, the Company is still in the process of finalizing its analysis of Versace's lease portfolio. As such, the Company is currently
unable to provide the estimated impact of ASU 2016-02 on its consolidated financial statements.
The FASB has issued several additional ASUs to provide implementation guidance relating to ASU 2016-02, including
ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842” in January 2018, ASU 2018-10, “Codification
Improvements to Topic 842, Leases” and ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” both issued in July 2018,
ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors” issued in December 2018, and ASU 2019-01,
“Leases (Topic 842): Codification Improvements” issued in March 2019. The Company will consider this guidance in evaluating
the impact of ASU 2016-02.
Intangibles
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract,” which reduces the complexity for the accounting for costs of implementing a cloud computing service arrangement.
The standard aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether or not
the contract conveys a license to the hosted software. ASU 2018-15 is effective beginning with the Company’s Fiscal 2021, with
early adoption permitted, and can either be presented prospectively or retrospectively. The Company is currently evaluating the
impact of ASU 2018-15 on its consolidated financial statements.
3. Revenue Recognition
The Company accounts for contracts with its customers when there is approval and commitment from both parties, the
rights of the parties and payment terms have been identified, the contract has commercial substance and collectability of
consideration is probable. Revenue is recognized when control of the promised goods or services is transferred to the Company’s
customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services.
The Company sells its products through three primary channels of distribution: retail, wholesale and licensing. Within the
retail and wholesale channels, substantially all of the Company’s revenues consist of sales of products that represent a single
performance obligation, where control transfers at a point in time to the customer. For licensing arrangements, royalty and
advertising revenue is recognized over time based on access provided to the Company’s brands.
The Company has chosen to apply the practical expedient allowing it not to disclose the amount of the transaction price
allocated to the remaining performance obligations that have an expected duration of 12 months or less.
Retail
The Company generates sales through directly operated stores and e-commerce throughout the Americas (U.S., Canada
and Latin America, excluding Brazil), EMEA (Europe, Middle East, and Africa) and certain parts of Asia. Retail revenue is
recognized when control of the product is transferred at the point of sale at Company owned stores, including concessions. For e-
commerce transactions, control is transferred when products are delivered to the customer, net of estimated returns. To arrive at
net sales for retail, gross sales are reduced by actual customer returns, as well as by a provision for estimated future customer
returns.
Sales taxes collected from retail customers are presented on a net basis and, as such, are excluded from revenue. Shipping
and handling costs that are billed to customers are included in net sales, with the related costs recorded in cost of goods sold.
Shipping and handling costs that are not billed to customers are accounted for as fulfillment costs.
Gift Cards. The Company sells gift cards that can be redeemed for merchandise, resulting in a contract liability recorded
upon issuance. Revenue is recognized when the gift card is redeemed or upon “breakage” for the estimated portion of gift cards
that are not expected to be redeemed. “Breakage” revenue is calculated under the proportional redemption methodology, which
considers the historical patterns of redemption in jurisdictions where the Company is not required to remit the value of the
unredeemed gift cards as unclaimed property. The Company anticipates that substantially all of its outstanding gift cards will be
redeemed within the next 12 months. The contract liability related to gift cards, net of estimated “breakage,” was $13 million as
of March 30, 2019, and is included in accrued expenses and other current liabilities in the Company’s consolidated balance sheet.
75
Loyalty Program. The Company offers a loyalty program, which allows its Michael Kors customers to earn points on
qualifying purchases toward monetary and non-monetary rewards, which may be redeemed for purchases at Michael Kors retail
stores and e-commerce sites. The Company defers a portion of the initial sales transaction based on the estimated relative fair
value of the benefits based on projected timing of future redemptions and historical activity. These amounts include estimated
“breakage” for points that are not expected to be redeemed. The contract liability, net of an estimated “breakage,” of $3 million(cid:3)
as of March 30, 2019 is recorded as a reduction to revenue in the consolidated statements of income and comprehensive income
and within accrued expenses and other current liabilities in the Company’s consolidated balance sheet and is expected to be
recognized within the next 12 months.
Wholesale
The Company’s products are sold primarily to major department stores, specialty stores and travel retail shops throughout
the Americas, EMEA and Asia. The Company also has arrangements where its products are sold to geographic licensees in certain
parts of EMEA, Asia, and South America. Wholesale revenue is recognized net of estimates for sales returns, discounts, markdowns
and allowances, after merchandise is shipped and control of the underlying product is transferred to the Company’s wholesale
customers. To arrive at net sales for wholesale, gross sales are reduced by provisions for estimated future returns, as well as trade
discounts, markdowns, allowances, operational chargebacks, and certain cooperative selling expenses. These estimates are
developed based on the most likely amount using historical trends, actual and forecasted performance and market conditions, and
are reviewed by management on a quarterly basis. Unfulfilled, noncancelable purchase orders for products from wholesale
customers (including the Company’s geographic licensees) are expected to be fulfilled within the next 12 months.
Licensing
The Company provides its third-party licensees with the right to access its Versace, Jimmy Choo and Michael Kors trademarks
under product and geographic licensing arrangements. Under product licensing arrangements, the Company allows third parties
to manufacture and sell luxury goods, including watches and jewelry, fragrances, sunglasses and eyewear, using the Company’s
trademarks. Under geographic licensing arrangements, third party licensees receive the right to distribute and sell products bearing
the Company’s trademarks in retail and/or wholesale channels within certain geographical areas, including Brazil, the Middle
East, Eastern Europe, South Africa, certain parts of Asia and Australia.
The Company recognizes royalty revenue and advertising contributions based on the percentage of sales made by the
licensees. Advertising contributions are received to support the Company’s branded advertising and marketing campaigns and are
viewed as part of a single performance obligation with the right to access the Company’s trademarks. Royalty revenue generated
from licenses, which includes contributions for advertising, may be subject to contractual minimum levels, as defined in the
contract. Such minimums are generally fixed annually, based on the previous year’s sales. Licensing revenue is based on reported
current period sales of licensed products at rates that are specified in the license agreements for contracts that are expected to
exceed the related guaranteed minimums. If the Company expects the minimum guaranteed amounts to exceed amounts calculated
based on actual sales, the guaranteed minimums are recognized ratably over the contractual year to which they relate. Generally
the Company’s guaranteed minimum royalty amounts due from licensees relate to contractual periods that do not exceed 12 months,
however, some of our guaranteed minimums for Versace are multi-year based. As of March 30, 2019, contractually guaranteed
minimum fees from our license agreements expected to be recognized as revenue during future periods were as follows (in millions):
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025 and thereafter
Total
76
Contractually
Guaranteed
Minimum Fees
28
28
27
21
10
36
150
$
$
Sales Returns
For the sale of goods with a right of return, the Company recognizes revenue for the consideration to which it expects to
be entitled and a refund liability for the amount it expects to refund to its customers within accrued expenses and other current
liabilities. The refund liability is determined based on the most likely amount and is based on management’s review of historical
and current customer returns for its retail and wholesale customers, estimated future returns, adjusted for non-resalable products.
The Company also considers its product strategies, as well as the financial condition of its customers, store closings by wholesale
customers, changes in the retail environment and other macroeconomic factors. The Company recognizes an asset with a
corresponding adjustment to cost of sales for the right to recover the products from its retail and wholesale customers, net of any
costs to resell. The refund liability recorded as of March 30, 2019 was $35 million and the related asset for the right to recover
returned product as of March 30, 2019 was $12 million.
Contract Balances
The Company’s contract liabilities are recorded within accrued expenses and other current liabilities and other long-term
liabilities in its consolidated balance sheets depending on the short or long-term nature of the payments to be recognized. The
Company’s contract liabilities primarily consist of gift card liabilities, loyalty program liabilities and advanced payments from
product licensees. Total contract liabilities were $31 million and $23 million as of March 30, 2019 and March 31, 2018, respectively.
In connection with the acquisition of Versace, the Company’s contract liabilities increased $9 million as of March 30, 2019.
Contract liabilities decreased $5 million as a result of the adoption of ASC 606 on April 1, 2018, due to recognition of gift card
breakage revenue (see Note 2). During Fiscal 2019, the Company recognized $16 million in revenue, which related to contract
liabilities that existed at March 31, 2018. There were no contract assets recorded as of March 30, 2019 and April 1, 2018.
There were no changes in historical variable consideration estimates that were materially different from actual results.
Disaggregation of Revenue
The following table presents the Company’s segment revenues disaggregated by geographic location (in millions):
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
Versace revenue - the Americas
$
Versace revenue - EMEA
Versace revenue - Asia
Total Versace
Jimmy Choo revenue - the Americas
Jimmy Choo revenue - EMEA
Jimmy Choo revenue - Asia
Total Jimmy Choo
Michael Kors revenue - the Americas
Michael Kors revenue - EMEA
Michael Kors revenue - Asia
Total Michael Kors
Total revenue - the Americas
Total revenue - EMEA
Total revenue - Asia
Total revenue
22
66
49
137
96
321
173
590
3,064
892
555
4,511
3,182
1,279
777
$
— $
—
—
—
37
123
63
223
2,996
970
530
4,496
3,033
1,093
593
—
—
—
—
—
—
—
—
3,141
944
409
4,494
3,141
944
409
4,494
$
5,238
$
4,719
$
77
4. Acquisitions
Fiscal 2019 Acquisition
Acquisition of Versace
On December 31, 2018, the Company completed the acquisition of Versace for a total enterprise value of
approximately €1.753 billion (or approximately $2.005 billion), giving effect to an investment made by the Versace family at
acquisition of 2.4 million shares. The acquisition was funded through a combination of borrowings under the Company’s 2018
Term Loan Facility, drawings under the Company’s Revolving Credit Facility and cash on hand (see Note 11 for additional
information).
The following table summarizes the aggregate purchase price consideration paid to acquire Versace in cash (in millions):
Cash consideration paid to Versace shareholders (1)
Capri share consideration (2)
Total purchase price
December 31, 2018
$
$
1,914
91
2,005
(1) The cash consideration includes €90 million (or $103 million) of cash paid on behalf of the shareholder for pre-existing
debt as of the Closing Date.
(2) The Versace family elected to receive 2,395,170 of the Company’s ordinary shares in exchange for a portion of the
cash consideration. The closing price of the Company's shares as of December 31, 2018 of $37.92 was used to compute
the fair value of the share consideration as of the acquisition date.
The Company believes that this combination will further strengthen its future growth opportunities while also increasing
both product and geographic diversification and will allow it to grow its international presence through the formation of a global
fashion luxury group, bringing together industry-leading luxury fashion brands. The Company accounted for this acquisition as
a business combination under the acquisition method of accounting. The Company estimated the preliminary fair value of acquired
assets and liabilities as of the date of acquisition based on the currently available information. As the Company finalizes the fair
value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement
period. The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities
assumed at the date of acquisition (in millions):
78
Cash and cash equivalents
Accounts receivable
Inventory (1)
Other current assets
Current assets
Property and equipment (2)
Goodwill (3)
Brand (4)
Customer relationships (5)
Favorable lease (6)
Deferred tax assets (7)
Other assets (7)
Total assets acquired
Accounts payable
Short term debt
Other current liabilities
Current liabilities
Deferred tax liabilities
Other liabilities (6) (7)
Total liabilities assumed
Less: Noncontrolling interest in joint ventures
Fair value of net assets acquired
Fair value of acquisition consideration
December 31, 2018
41
82
197
39
359
89
878
948
203
16
24
135
2,652
144
57
99
300
289
54
643
4
2,005
2,005
$
$
$
$
$
$
$
(1)
(2)
Includes an inventory step-up adjustment of $19 million, which will be recognized as an adjustment to the Company’s
cost of goods sold in its statement of operations within twelve months.
Includes a $11 million adjustment to reduce the fair value of Versace’s leasehold improvements, which will be recognized
over the remaining lease term.
(3) Represents the difference between the purchase price over the net identifiable tangible and intangible assets acquired
allocated to goodwill, which is not deductible for tax purposes.
(4) Represents the fair value of Versace’s brand, which is an indefinite-lived intangible asset due to being essential to the
Company’s ability to operate the Versace business for the foreseeable future. The Versace brand was valued using the
relief-from-royalty method of the income valuation approach.
(5) Represents customer relationships associated with Versace product licensees, wholesale customers and geographic
licensees, which are being amortized over 12 years, 10 years and 9 years, respectively. These useful lives were estimated
based on the time to recover the related future discounted cash flows. These intangible assets were valued using multi-
period excess-earnings valuation method.
(6)
Includes favorable leases and unfavorable leases of $16 million and $7 million, respectively, which will be amortized
over the remaining lease terms.
(7) Represents adjustments to reduce deferred tax assets by $39 million and increase uncertain tax positions by $33 million,
with an offsetting increase to other assets of $72 million relating to an indemnification.
Versace’s results of operations have been included in our consolidated financial statements beginning on December 31,
2018. Versace contributed total revenue of $137 million and net loss of $12 million, after amortization of non-cash purchase
accounting adjustments and transition and transaction costs, from the date of acquisition on December 31, 2018 through February
28, 2019 (reflecting a one-month reporting lag).
79
The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal years ended
March 30, 2019 and March 31, 2018 as if the acquisition had occurred on April 2, 2017, the beginning of Fiscal 2018 (in millions):
Pro-forma total revenue
Pro-forma net income
Pro-forma net income per ordinary share attributable to Capri:
Basic
Diluted
Fiscal Years Ended
March 30, 2019
March 31, 2018
$
$
$
5,983
$
579
3.82
3.78
$
$
5,473
526
3.40
3.34
The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and
Versace and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed
at the beginning of Fiscal 2018 and are not indicative of the future operating results of the combined company. The financial
information for Versace prior to the acquisition has been included in the pro-forma results of operations on a calendar-year basis
and includes certain adjustments to Versace’s historical consolidated financial statements to align with U.S. GAAP and the
Company’s accounting policies. The pro-forma consolidated results of operations also include the effects of purchase accounting
adjustments, including amortization charges related to the definite-lived intangible assets acquired, fair value adjustments relating
to leases and fixed assets, and the related tax effects assuming that the business combination occurred on April 2, 2017. Purchase
accounting amortization of the inventory step-up adjustment has been excluded from the above pro-forma amounts due to the
short-term nature of this adjustment. The pro-forma consolidated financial statements also reflect the impact of debt repayment
and borrowings made to finance the acquisition (see Note 11) and exclude historical interest expenses related to Versace’s €90
million pre-existing debt. Transaction costs of $41 million for Fiscal 2019, which have been recorded within restructuring and
other charges in the Company’s consolidated statements of operations and comprehensive income, have been excluded from the
above pro-forma consolidated results of operations due to their non-recurring nature. The shares used to calculate the pro-forma
net income per ordinary share attributable to Capri reflect the weighted average impact of a 2.4 million ordinary share investment
made by the Versace family at acquisition date.
Fiscal 2018 Acquisition
Acquisition of Jimmy Choo Group Limited
On November 1, 2017, the Company completed the acquisition of Jimmy Choo, whereby the Company's wholly-owned
subsidiary acquired all of Jimmy Choo’s issued and to be issued shares at a purchase price of 230 pence per share in cash, for a
total transaction value of $1.447 billion, including the repayment of existing debt obligations, which was funded through a
combination of borrowings under the Company’s new $1.0 billion term loan facility, the issuance of the Senior Notes and cash
on hand (please refer to Note 11 for additional information).
Jimmy Choo’s results of operations have been included in our consolidated financial statements beginning on November
1, 2017. Jimmy Choo contributed revenue of $223 million and net loss of $15 million (after amortization of non-cash purchase
accounting adjustments and transition and transaction costs) for the period from the date of acquisition through March 31, 2018.
The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal years ended
March 31, 2018 and April 1, 2017 as if the acquisition had occurred on April 3, 2016, the beginning of Fiscal 2017 (in millions):
Pro-forma total revenue
Pro-forma net income
Pro-forma net income per ordinary share attributable to Capri:
Basic
Diluted
Fiscal Years Ended
March 31, 2018
April 1, 2017
$
$
$
5,012
$
623
4.09
4.02
$
$
4,985
554
3.34
3.29
80
The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and
Jimmy Choo and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was
completed at the beginning of Fiscal 2017 and are not indicative of the future operating results of the combined company. The
financial information for Jimmy Choo prior to the acquisition has been included in the pro-forma results of operations on a calendar-
year basis and includes certain adjustments to Jimmy Choo’s historical consolidated financial statements to align with U.S. GAAP
and the Company’s accounting policies. The pro-forma consolidated results of operations also include the effects of purchase
accounting adjustments, including amortization charges related to the definite-lived intangible assets acquired, fair value
adjustments relating to leases and fixed assets, and the related tax effects assuming that the business combination occurred on
April 3, 2016. Purchase accounting amortization of the inventory step-up adjustment has been excluded from the above pro-forma
amounts due to the short-term nature of this adjustment. The pro-forma consolidated financial statement also reflect the impact
of debt repayment and borrowings made to finance the acquisition (see Note 11) and exclude historical interest expense for Jimmy
Choo. Transaction costs of $41 million for Fiscal 2018, which have been recorded within restructuring and other charges in the
Company’s consolidated statements of operations and comprehensive income, have been excluded from the above pro-forma
consolidated results of operations due to their non-recurring nature.
Fiscal 2017 Acquisition
Acquisition of Michael Kors (HK) Limited
On May 31, 2016, the Company acquired 100% of the stock of MKHKL, the Michael Kors licensees in the Greater China
region, which includes China, Hong Kong, Macau and Taiwan. The Company believes that having direct control of this business
allows it to better manage opportunities and capitalize on the growth potential in the region. This acquisition was funded by a cash
payment of $500 million. The Company accounted for the acquisition as a business combination.
MKHKL’s results of operations have been included in our consolidated financial statements beginning on June 1, 2016.
MKHKL contributed total revenue of $212 million and net loss of $11 million for the period from the date of acquisition through
April 1, 2017 (after amortization of non-cash valuation adjustments and integration costs).
The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal year ended April 1,
2017 as if the acquisition had occurred on March 29, 2015, the beginning of Fiscal 2016 (in millions):
Pro-forma total revenue
Pro-forma net income
Pro-forma net income per ordinary share attributable to Capri:
Basic
Diluted
Fiscal Years Ended
April 1, 2017
$
$
$
4,520
549
3.31
3.26
The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and
MKHKL and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was
completed at the beginning of Fiscal 2016 and are not indicative of the future operating results of the combined company. The
pro-forma consolidated results of operations reflect the elimination of intercompany transactions and include the effects of purchase
accounting adjustments, including amortization charges related to the definite-lived intangible assets acquired (reacquired rights
and customer relationships), fair value adjustments relating to leases, fixed assets and inventory, and the related tax effects assuming
that the business combination occurred on March 29, 2015. The pro-forma consolidated results of operations for Fiscal 2017 also
reflect the elimination of transaction costs of approximately $11 million, which have been recorded within restructuring and other
charges in the Company’s consolidated statements of operations and comprehensive income for Fiscal 2017.
81
5. Receivables, net
Receivables, net consist of (in millions):
Trade receivables (1)
Receivables due from licensees
Less: allowances
March 30,
2019
March 31,
2018
$
$
459
23
482
(99)
383
$
$
383
16
399
(109)
290
(1) As of March 30, 2019 and March 31, 2018, $317 million and $296 million, respectively, of trade receivables were
insured.
Receivables are presented net of allowances for discounts, markdowns, operational chargebacks and doubtful accounts.
Discounts are based on open invoices where trade discounts have been extended to customers. Allowances are based on wholesale
customers’ sales performance, seasonal negotiations with customers, historical deduction trends and an evaluation of current
market conditions. Operational chargebacks are based on deductions taken by customers, net of expected recoveries. Such
provisions, and related recoveries, are reflected in revenues.
The Company’s allowance for doubtful accounts is determined through analysis of periodic aging of receivables that are
not covered by insurance and assessments of collectability based on an evaluation of historic and anticipated trends, the financial
condition of the Company’s customers and the impact of general economic conditions. The past due status of a receivable is based
on its contractual terms. Amounts deemed uncollectible are written off against the allowance when it is probable the amounts will
not be recovered. Allowance for doubtful accounts was $18 million as of March 30, 2019, including an $11 million allowance
within the opening balance sheet of our newly acquired Versace business. Allowance for doubtful accounts was $5 million as of
March 31, 2018, which included an allowance due to a bankruptcy of one of our wholesale customers. The Company had provisions
for bad debt of $4 million, $8 million and $6 million, respectively, for Fiscal 2019, Fiscal 2018 and Fiscal 2017.
6. Concentration of Credit Risk, Major Customers and Suppliers
Financial instruments that subject the Company to concentration of credit risk are cash and cash equivalents and receivables.
As part of its ongoing procedures, the Company monitors its concentration of deposits with various financial institutions in order
to avoid any undue exposure. The Company mitigates its risk by depositing cash and cash equivalents in major financial institutions.
The Company also mitigates its credit risk by obtaining insurance coverage for a substantial portion of its receivables (see Note
5). No individual customer accounted for 10% or more of the Company’s total revenues during Fiscal 2019, Fiscal 2018 or Fiscal
2017.
The Company contracts for the purchase of finished goods principally with independent third-party contractors, whereby
the contractor is generally responsible for all manufacturing processes. Although the Company does not have any long-term
agreements with any of its manufacturing contractors, the Company believes it has mutually satisfactory relationships with them.
The Company allocates product manufacturing among agents and contractors based on their capabilities, the availability of
production capacity, quality, pricing and delivery. The inability of certain contractors to provide needed services on a timely basis
could adversely affect the Company’s operations and financial condition. For Fiscal 2019, Fiscal 2018 and Fiscal 2017, one
contractor accounted for approximately 21%, 26% and 33%, respectively, of the Company’s total finished goods purchases, based
on dollar volume.
The Company also has relationships with various agents who source finished goods with numerous contractors on behalf
of its Michael Kors brand. For Fiscal 2019, Fiscal 2018 and Fiscal 2017, one agent sourced approximately 24%, 24% and 22%,
respectively, of Michael Kors finished goods, based on unit volume.
82
7. Property and Equipment, Net
Property and equipment, net, consists of (in millions):
Leasehold improvements
In-store shops
Furniture and fixtures
Computer equipment and software
Equipment
Building
Land
Less: accumulated depreciation and amortization
Construction-in-progress
March 30,
2019
March 31,
2018
639
270
292
292
123
47
15
1,678
(1,115)
563
52
615
$
$
551
274
271
266
117
52
16
1,547
(1,002)
545
38
583
$
$
Depreciation and amortization of property and equipment for the fiscal years ended March 30, 2019, March 31, 2018, and
April 1, 2017, was $188 million, $182 million and $198 million, respectively. During Fiscal 2019, the Company recorded fixed
asset impairment charges of $19 million, $15 million of which related to underperforming Michael Kors full-price retail store
locations, some of which will be closed as part of the Company’s previously announced Retail Fleet Optimization Plan and $4
million related to Jimmy Choo retail store locations (as defined in Note 10). During Fiscal 2018 and Fiscal 2017, the Company
recorded fixed asset impairment charges of $28 million and $169 million, respectively, primarily related to underperforming
Michael Kors retail locations.
8. Intangible Assets and Goodwill
The following table details the carrying values of the Company’s intangible assets other than goodwill (in millions):
March 30, 2019
March 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization (1)
Net
Gross
Carrying
Amount
Accumulated
Amortization (1)
Net
$
400
23
96
415
934
572
930
1,502
45
19
56
23
143
—
—
—
$
$
355
4
40
392
791
572
930
1,502
$
400
23
80
231
734
614
—
614
$
29
17
58
8
112
—
—
—
371
6
22
223
622
614
—
614
Definite-lived intangible assets:
Reacquired rights
Trademarks
Lease rights
Customer relationships
$
Indefinite-lived intangible assets:
Jimmy Choo brand (2)
Versace brand
Total intangible assets, excluding
goodwill
$
2,436
$
143
$
2,293
$
1,348
$
112
$
1,236
________________________________
(1)
Includes $2 million, $5 million and $30 million, respectively, of impairment charges recorded during Fiscal 2019,
Fiscal 2018 and Fiscal 2017 in connection with underperforming full-price retail stores. See Note 13 for additional
information.
(2) The change in carrying value relates to foreign currency translation.
83
Reacquired rights relate to the Company’s reacquisition of the rights to use the Michael Kors trademarks and to import,
sell, advertise and promote certain of its products in the previously licensed territories in the Greater China region and are being
amortized through March 31, 2041, the expiration date of the related license agreement. The trademarks relate to the Michael Kors
brand name and are amortized over twenty years. Customer relationships are amortized over five to eighteen years. Lease rights
are amortized over the respective terms of the underlying lease, including highly probable renewal periods. Amortization expense
for the Company’s definite-lived intangibles was $37 million, $26 million and $22 million, respectively, for each of the fiscal
years ended March 30, 2019, March 31, 2018 and April 1, 2017.
Indefinite-lived intangible assets other than goodwill included the Versace and Jimmy Choo brands, which were recorded
in connection with the acquisitions of Versace and Jimmy Choo, and have an indefinite life due to being essential to the Company’s
ability to operate the Versace and Jimmy Choo businesses for the foreseeable future.
Estimated amortization expense for each of the next five years is as follows (in millions):
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025 and thereafter
$
$
56
55
52
50
49
529
791
The future amortization expense above reflects weighted-average estimated remaining useful lives of 22 years for reacquired
rights, 4 years for trademarks, 14 years for customer relationships and 6 years for lease rights.
The following table details the changes in goodwill for each of the Company’s reportable segments (in millions):
Balance at April 1, 2017
Acquisition of Jimmy Choo
Foreign currency translation
Balance at March 31, 2018
Acquisition of Versace (2)
Foreign currency translation
Balance at March 30, 2019
Versace
Jimmy Choo
Michael
Kors (1)
Total
$
— $
— $
120
$
—
—
—
878
(17)
861
$
685
43
728
—
(50)
678
$
—
—
120
—
—
$
120
$
120
685
43
848
878
(67)
1,659
(1)
In connection with the realignment of the Company’s reportable segment structure, the Company presented the carrying
amount of goodwill of MK Retail, MK Wholesale and MK Licensing reporting units within the Michael Kors reportable
segment, effective beginning in the fourth quarter of Fiscal 2019.
(2) See Note 4 for additional information.
The Company’s goodwill and the Versace and Jimmy Choo brands are not subject to amortization but are evaluated for
impairment annually in the last quarter of each fiscal year, or whenever impairment indicators exist. During the fourth quarter of
Fiscal 2019, the Company performed its annual goodwill and indefinite-lived intangible assets impairment analysis for its three
brands. The impairment analysis relating to the Versace goodwill and brand were performed using a qualitative approach due to
the proximity to the acquisition date and it was concluded that it is more likely than not that the fair value of goodwill and brand
exceeded their respective carrying values and, therefore, did not result in impairment. The Company also performed its goodwill
impairment assessment for the Michael Kors brand using a qualitative approach. As a result of realigning its segment reporting
structure during the fourth quarter of Fiscal 2019, the Company presented the carrying amount of goodwill of MK Retail, MK
Wholesale and MK Licensing within the Michael Kors reportable segment. Based on the results of the Company’s qualitative
impairment assessment, the Company concluded that it is more likely than not that the fair value of the Michael Kors’ reporting
units exceeded their carrying value and, therefore, was not impaired. The Company elected to perform its annual goodwill and
brand impairment analysis for Jimmy Choo brand using a quantitative approach, using discounted cash flow and market multiples
analysis to estimate the fair values of the Jimmy Choo reporting units, as described above. Based on the results of these assessments,
84
the Company concluded that the fair values of the Jimmy Choo reporting units and the brand indefinite-lived intangible asset
exceeded the related carrying amounts and there were no reporting units at risk of impairment. See Note 13 to the accompanying
audited financial statements for information relating to its annual impairment analysis performed during the fourth quarter of
Fiscal 2019. There were no impairment charges related to goodwill or indefinite-lived intangible assets in any of the fiscal periods
presented.
9.(cid:3)Current Assets and Current Liabilities
Prepaid expenses and other current assets consist of the following (in millions):
March 30,
2019
March 31,
2018
Prepaid taxes
Prepaid rent
Interest receivable related to net investment hedges
Leasehold incentive receivable
Other
$
$
125
24
11
9
52
221
Accrued expenses and other current liabilities consist of the following (in millions):
Restructuring liability
Other taxes payable
Return liabilities
Accrued rent
Accrued purchases and samples
Accrued capital expenditures
Gift cards and retail store credits
Professional services
Accrued litigation
Accrued advertising and marketing
Accrued interest
Other
March 30,
2019
64
47
35
34
29
25
13
12
11
10
10
84
374
$
$
$
$
$
$
March 31,
2018
79
23
—
9
37
148
45
54
12
34
3
26
16
14
—
23
9
59
295
10. Restructuring and Other Charges
On May 31, 2017, the Company announced that it plans to close between 100 and 125 of its Michael Kors retail stores in
order to improve the profitability of its retail store fleet (“Retail Fleet Optimization Plan”). The Company anticipates finalizing
the remainder of the planned store closures under the Retail Fleet Optimization Plan by the end of Fiscal 2020. The Company
expects to incur approximately $100 - $125 million of one-time costs associated with these store closures. Collectively, the
Company anticipates ongoing annual savings of approximately $60 million as a result of store closures and lower depreciation
and amortization expense as a result of the impairment charges recorded once these initiatives are completed.
85
During Fiscal 2019, the Company closed 53 of its Michael Kors retail stores under the Retail Fleet Optimization Plan, for
a total of 100 stores closed since plan inception. Restructuring charges recorded in connection with the Retail Fleet Optimization
Plan during Fiscal 2019 and Fiscal 2018 were $41 million and $53 million, respectively. The below table presents a rollforward
of the Company’s remaining restructuring liability related to this plan (in millions):
Balance at March 31, 2018
Additions charged to expense
Balance sheet reclassifications (1)
Payments
Balance at March 30, 2019
Severance and
benefit costs
Lease-related
costs
Total
$
$
— $
3
—
(1)
2
$
45
38
6
(36)
53
$
$
45
41
6
(37)
55
(1) Primarily consists of reclassification of deferred rent for locations subject to closure to a restructuring liability.
During Fiscal 2018, the Company recorded restructuring charges of $53 million under the Retail Fleet Optimization Plan,
which were comprised of lease-related charges of $52 million and severance and benefit costs of $1 million.
Other Restructuring Charges
In addition to the restructuring charges related to the Retail Fleet Optimization Plan, the Company incurred charges of $4
million relating to Jimmy Choo lease-related charges during Fiscal 2019.
Transaction and Transition Costs
During Fiscal 2019, the Company recorded transaction and transition costs of $79 million, which included $52 million in
connection with the Versace acquisition and $27 million in connection with the acquisition of Jimmy Choo.
During Fiscal 2018, the Company recorded transaction and transition costs of $49 million in connection with the Jimmy
Choo acquisition. During Fiscal 2017, the Company recorded transaction costs of $11 million related to the acquisition of the
Greater China business. See Note 4 for additional information relating to these acquisitions.
11. Debt Obligations
The following table presents the Company’s debt obligations (in millions):
Term Loan(1)
4.000% Senior Notes due 2024
Revolving Credit Facilities
Other
Total debt
Less: Unamortized debt issuance costs
Less: Unamortized discount on long-term debt
Total carrying value of debt
Less: Short-term debt
Total long-term debt
March 30,
2019
March 31,
2018
$
$
1,580
450
550
1
2,581
13
2
2,566
630
1,936
$
$
230
450
200
1
881
4
2
875
200
675
(1) During Fiscal 2019, the Company repaid the remaining $59 million of borrowings outstanding under the previous Term
Loan Facility entered into in connection with the Jimmy Choo acquisition.
86
Senior Unsecured Revolving Credit Facility
On November 15, 2018, the Company entered into a third amended and restated senior unsecured credit facility (the “2018
Credit Facility”) with, among others, JPMorgan Chase Bank, N.A., as administrative agent, which replaced its prior 2017 senior
unsecured revolving credit facility (the “2017 Credit Facility”). The Company and its U.S., Canadian, Dutch and Swiss subsidiaries
are the borrowers under the 2018 Credit Facility. The borrowers and certain material subsidiaries of the Company provide unsecured
guarantees of the 2018 Credit Facility. The 2018 Credit Facility provides for a $1.0 billion revolving credit facility (the “Revolving
Credit Facility”), which may be denominated in U.S. Dollars and other currencies, including Euros, Canadian Dollars, Pounds
Sterling, Japanese Yen and Swiss Francs. The Revolving Credit Facility also provides sub-facilities for the issuance of letters of
credit of up to $75 million and swing line loans of up to $75 million. The 2018 Credit Facility also provides for a $1.6 billion term
loan facility (the “2018 Term Loan Facility”) to finance a portion of the purchase price of the Company’s acquisition of Versace.
The 2018 Term Loan Facility is divided into two tranches, an $800 million tranche that matures on the second anniversary of the
initial borrowing of the term loans and an $800 million tranche that matures on the fifth anniversary of the initial borrowing of
the term loans. The $800 million tranche that matures on the fifth anniversary is required to be repaid on the last business day of
March, June, September and December of each year, commencing after the last business day of the first full fiscal quarter after
the initial borrowing, in installments equal to 2.50% of the aggregate original principal amount of the term loans. The Company
has the right to prepay its borrowings under the 2018 Term Loan Facility at any time in whole or in part. The Revolving Credit
Facility expires on November 15, 2023. The Company has the ability to expand its borrowing availability under the 2018 Credit
Facility in the form of revolving commitments or term loans by up to an additional $500 million, subject to the agreement of the
participating lenders and certain other customary conditions.
Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at the following rates:
•
•
•
•
for any loans (except loans denominated in Canadian Dollars), the greater of Adjusted LIBOR for the applicable interest
period and zero, plus an applicable margin based on the Company’s public debt rating;
for loans denominated in U.S. Dollars, an alternate base rate, which is the greatest of: (a) the prime rate publicly announced
from time to time by JPMorgan Chase, (b) the greater of the federal funds effective rate and the Federal Reserve Bank of
New York overnight bank funding rate and zero, plus 50 basis points, and (c) the greater of the one-month London Interbank
Offered Rate adjusted for statutory reserve requirements for Eurocurrency liabilities (“Adjusted LIBOR”) and zero, plus
100 basis points, in each case, plus an applicable margin based on the Company’s public debt ratings;
for loans denominated in Canadian Dollars, the Canadian prime rate, which is the greater of the PRIMCAN Index rate and
the rate applicable to one-month Canadian Dollar banker’s acceptances quoted on Reuters (“CDOR”), plus 100 basis points,
plus an applicable margin based on the Company’s public debt ratings; or
for loans denominated in Canadian Dollars, the average CDOR rate for the applicable interest period, plus 10 basis points
per annum, plus an applicable margin based on the Company’s public debt ratings.
Borrowings under the 2018 Term Loan Facility bear interest, at the Company’s option, at (a) the alternate base rate plus an
applicable margin based on the Company’s public debt ratings; or (b) the greater of Adjusted LIBOR for the applicable interest
period and zero, plus an applicable margin based on the Company’s public debt ratings.
The Revolving Credit Facility also provides for an annual administration fee and a commitment fee equal
to 0.10% to 0.25% per annum, based on the Company’s public debt ratings, applied to the average daily unused amount of the
Revolving Credit Facility. The 2018 Term Loan Facility provides for a commitment fee equal to 0.10% to 0.25% per annum, based
on the Company’s public debt ratings, applied to the undrawn amount of the 2018 Term Loan Facility, from January 6, 2019 until
the term loans are fully drawn or the commitments under the 2018 Term Loan Facility terminate or expire. Loans under the 2018
Credit Facility may be repaid and commitments may be terminated or reduced by the borrowers without premium or penalty other
than the customary breakage costs with respect to loans bearing interest based on Adjusted LIBOR or the CDOR rate.
The 2018 Credit Facility requires the Company to maintain a leverage ratio as of the end of each fiscal quarter of no greater
than 3.75 to 1. Such leverage ratio is calculated as the ratio of the sum of total indebtedness as of the date of the measurement plus
six times the consolidated rent expense for the last four consecutive fiscal quarters, to Consolidated EBITDAR (as defined below)
for the last four consecutive fiscal quarters. Consolidated EBITDAR is defined as consolidated net income plus income tax expense,
net interest expense, depreciation and amortization expense, consolidated rent expense and other non-cash charges, subject to
certain additions and deductions. The 2018 Credit Facility also includes covenants that limit additional indebtedness, guarantees,
liens, acquisitions and other investments and cash dividends that are customary for financings of this type. As of March 30, 2019,
the Company was in compliance with all covenants related to this agreement.
87
The 2018 Credit Facility contains events of default customary for financings of this type, including, but not limited to,
payment of defaults, material inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain
indebtedness, certain events of bankruptcy or insolvency, certain events under The Employee Retirement Income Security Act,
material judgments, actual or asserted failure of any guaranty supporting the 2018 Credit Facility to be in full force and effect,
and changes of control. If such an event of default occurs, the lenders under the 2018 Credit Facility would be entitled to take
various actions, including, but not limited to, terminating the commitments and accelerating amounts outstanding under the 2018
Credit Facility, subject to “certain funds” limitations in connection with the transaction governing the 2018 Term Loan Facility.
In connection with the acquisition of Versace, on December 21, 2018 the Company borrowed $1.6 billion in term loans
under the 2018 Term Loan Facility and $350 million under its $1.0 billion Revolving Credit Facility provided for under the 2018
Credit Facility, to pay a portion of the acquisition consideration and other related fees and expenses. As of March 30, 2019 and
March 31, 2018, the Company had borrowings of $539 million and $200 million outstanding under the 2018 Revolving Credit
Facility and its prior 2017 Revolving Credit Facility, respectively, which were recorded within short-term debt in its consolidated
balance sheets. In addition, stand-by letters of credit of $17 million were outstanding as of March 30, 2019. At March 30, 2019,
the amount available for future borrowings under the 2018 Revolving Credit Facility was $444 million. As of March 30, 2019,
the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $1.570 billion, net of debt issuance costs of
$10 million, of which $80 million was recorded within short-term debt and $1.490 billion was recorded within long-term debt in
its consolidated balance sheets.
Senior Notes
On October 20, 2017, Michael Kors (USA), Inc. (the “Issuer”), the Company’s wholly owned subsidiary, completed its
offering of $450 million aggregate principal amount of 4.000% senior notes due 2024 (the “Senior Notes”) at an issue price of
99.508% of aggregate principal amount, pursuant to an exemption from registration under the Securities Act of 1933, as amended.
The Senior Notes were issued under an indenture dated October 20, 2017, among the Issuer, the Company, the subsidiary guarantors
party thereto and U.S. Bank National Association, as trustee (the “Indenture”). The Senior Notes were issued to finance a portion
of the Company’s acquisition of Jimmy Choo and certain related refinancing transactions.
The Senior Notes bear interest at a rate of 4.000% per year, subject to adjustments from time to time if either Moody’s or
S&P (or a substitute rating agency therefore) downgrades (or downgrades and subsequently upgrades) the credit rating assigned
to the Senior Notes. Interest on the Senior Notes is payable semi-annually on May 1 and November 1 of each year, beginning on
May 1, 2018.
The Senior Notes are unsecured and are guaranteed by the Company and its existing and future subsidiaries that guarantee
or are borrowers under the 2018 Credit Facility (subject to certain exceptions, including subsidiaries organized in China).
The Senior Notes may be redeemed at the Company’s option at any time in whole or in part at a price equal to 100% of
the principal amount, plus accrued and unpaid interest, plus a “make-whole” amount calculated at the applicable Treasury Rate
plus 30 basis points.
The Senior Notes rank equally in right of payment with all of the Issuer’s and guarantors’ existing and future senior unsecured
indebtedness, senior in right of payment to any future subordinated indebtedness, effectively subordinated in right of payment to
any of the Company’s subsidiaries’ obligations (including secured and unsecured obligations) and any of the Company’s secured
obligations, to the extent of the assets securing such obligations.
The Indenture contains covenants, including those that limit the Company’s ability to create certain liens and enter into
certain sale and leaseback transactions. In the event of a “Change of Control Triggering Event,” as defined in the Indenture, the
Issuer will be required to make an offer to repurchase the Senior Notes at a repurchase price in cash equal to 101% of the aggregate
principal amount of the Senior Notes being repurchased plus any unpaid interest. These covenants are subject to important
limitations and exceptions, as per the Indenture.
As of March 30, 2019, the carrying value of the Senior Notes was $445 million, net of issuance costs and unamortized
discount.
88
Japan Credit Facility
In November 2017, the Company’s subsidiary in Japan entered into a short term credit facility (“Japan Credit Facility”)
with Mitsubishi UFJ Financial Group (“MUFJ”), which may be used to fund general working capital needs of Michael Kors Japan
K.K., subject to the bank’s discretion. The Japan Credit Facility is in effect through November 29, 2019. The Japan Credit Facility(cid:3)
provides Michael Kors Japan K.K. with a revolving credit line of up to ¥1.0 billion (approximately $9 million). The Japan Credit(cid:3)
Facility bears interest at a rate posted by the Bank plus 0.300% two business days prior to the date of borrowing or the date of(cid:3)
interest renewal. As of March 30, 2019 and March 31, 2018, the Company had no borrowings outstanding under the Japan Credit(cid:3)
Facility.
Hong Kong Credit Facility
In March 2019, the Company’s Hong Kong subsidiary, MKHKL, renewed its uncommitted credit facility (“HK Credit
Facility”) with HSBC, which may be used to fund general working capital needs of MKHKL through November 30, 2019 subject
to the bank’s discretion. The HK Credit Facility provides MKHKL with a revolving line of credit of up to 100 million Hong Kong
Dollars (approximately $13 million), and may be used to support bank guarantees. Borrowings under the HK Credit Facility must
be made in increments of at least 5 million Hong Kong Dollars and bear interest at the Hong Kong Interbank Offered Rate
(“HIBOR”) plus 150 basis points. As of March 30, 2019 and March 31, 2018, there were no borrowings outstanding under the
HK Credit Facility. As of March 30, 2019, bank guarantees supported by this facility were 12 million Hong Kong Dollars
(approximately $2 million). At March 30, 2019, the amount available for future borrowings under the HK Credit Facility was 88
million Hong Kong Dollars (approximately $11 million).
China Credit Facility
In January 2019, the Company’s subsidiary in China, MKTSCL, entered into a short-term credit facility (“China Credit
Facility”) with HSBC, which may be used to fund general working capital needs, not to exceed 12 months. The China Credit
Facility provides MKTSCL with a Revolving Loan Facility of up to RMB 70 million (approximately $10 million); an overdraft
facility with a credit line of RMB 10 million (approximately $1 million), and a non-financial bank guarantee facility of RMB 20
million (approximately $3 million) or its equivalent in another currency, at lender’s discretion. Borrowings under the China Credit
Facility bear interest at 105% of the applicable People’s Bank of China’s Benchmark lending rate at the time of borrowing. As of
March 30, 2019, the Company had no borrowings outstanding under the China Credit Facility.
Versace Credit Facility
In January 2018, the Company’s subsidiary, Versace, entered into an uncommitted short-term credit facility with BNL
(“Versace Credit Facility”), which may be used for general working capital needs of Versace. The Versace Credit Facility
provides Versace with a swing line of credit of up to €20 million (approximately $22 million), with interest set by the bank on
the date of borrowing. As of March 30, 2019, there were borrowings outstanding of €10 million (approximately $11 million,
which were recorded within short-term debt in the Company’s consolidated balance sheet.
12.(cid:3)Commitments and Contingencies
Leases
The Company leases office space, retail stores and warehouse space under operating lease agreements that expire at various
dates through September 2043. In addition to minimum rental payments, the leases require payment of increases in real estate
taxes and other expenses incidental to the use of the property.
Rent expense for the Company’s operating leases consists of the following (in millions):
Minimum rentals
Contingent rent
Total rent expense
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
$
$
357
109
466
$
$
272
80
352
$
$
257
76
333
89
Future minimum lease payments under the terms of these noncancelable operating lease agreements are as follows (in
millions):
Fiscal years ending:
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025 and thereafter
$
$
431
389
339
277
229
509
2,174
As of March 30, 2019, the future minimum lease payments in the table above were reduced by total noncancelable future
sublease rental income of $42 million.
The Company has issued stand-by letters of credit to guarantee certain of its retail and corporate operating lease commitments,
aggregating $18 million at March 30, 2019, including $17 million in letters of credit issued under the 2018 Credit Facility.
Other Commitments
As of March 30, 2019, the Company also has other contractual commitments aggregating $3.529 billion, which consist of
inventory purchase commitments of $865 million, debt obligations of $2.566 billion and other contractual obligations of $98
million, which primarily relate to obligations related to the Company’s marketing and advertising agreements, information
technology agreements and supply agreements.
Long-term Employment Contract
The Company has an employment agreement with the Chief Creative Officer of the Michael Kors brand that provides for
continuous employment through the date of the officer’s death or permanent disability at an annual salary of $1 million. In addition
to salary, the agreement provides for an annual bonus and other employee related benefits.
Contingencies
In the ordinary course of business, the Company is party to various legal proceedings and claims. Although the outcome
of such items cannot be determined with certainty, the Company’s management does not believe that the outcome of all pending
legal proceedings in the aggregate will have a material adverse effect on its cash flow, results of operations or financial position.
13. Fair Value Measurements
Financial assets and liabilities are measured at fair value using the three-level valuation hierarchy for disclosure of fair
value measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on
the inputs used in the valuation as of the measurement date, notably the extent to which the inputs are market-based (observable)
or internally derived (unobservable). Observable inputs are inputs that market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources. Unobservable inputs are inputs based on a company’s own
assumptions about market participant assumptions developed based on the best information available in the circumstances. The
hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that a company has the ability
to access at the measurement date.
Level 2 – Valuations based on quoted inputs other than quoted prices included within Level 1, that are observable for the
asset or liability, either directly or indirectly through corroboration with observable market data.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
90
At March 30, 2019 and March 31, 2018, the fair values of the Company’s forward foreign currency exchange contracts and
net investment hedges were determined using broker quotations, which were calculations derived from observable market
information: the applicable currency rates at the balance sheet date and those forward rates particular to the contract at inception.
The Company makes no adjustments to these broker obtained quotes or prices, but assesses the credit risk of the counterparty and
would adjust the provided valuations for counterparty credit risk when appropriate. The fair values of the forward contracts are
included in prepaid expenses and other current assets, and in accrued expenses and other current liabilities in the consolidated
balance sheets, depending on whether they represent assets or liabilities to the Company. The fair values of net investment hedges
are included in other assets, as detailed in Note 14.
All contracts are measured and recorded at fair value on a recurring basis and are categorized in Level 2 of the fair value
hierarchy, as shown in the following table (in millions):
Fair value at March 30, 2019, using:
Fair value at March 31, 2018, using:
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Derivative assets:
Forward foreign currency exchange
contracts
Net investment hedges
Total derivative assets
Derivative liabilities:
Other undesignated derivative
contracts
$
$
$
— $
—
— $
5
37
42
$
$
— $
—
— $
— $
—
— $
— $
—
— $
—
—
—
— $
5
$
— $
— $
8
$
—
The Company’s long-term debt obligations are recorded in its consolidated balance sheets at carrying values, which may
differ from the related fair values. The fair value of the Company’s long-term debt is estimated using external pricing data, including
any available quoted market prices and based on other debt instruments with similar characteristics. Borrowings under revolving
credit agreements, if outstanding, are recorded at carrying value, which approximates fair value due to the short-term nature of
such borrowings. See Note 11 for detailed information relating to carrying values of the Company’s outstanding debt. The following
table summarizes the carrying values and estimated fair values of the Company’s short- and long-term debt, based on Level 2
measurements (in millions):
4.000% Senior Notes
Term Loan
Revolving Credit Facilities
March 30, 2019
March 31, 2018
Carrying Value
Estimated
Fair Value
Carrying Value
Estimated
Fair Value
$
$
$
445
1,570
550
$
$
$
438
1,574
550
$
$
$
445
229
200
$
$
$
448
231
200
The Company’s cash and cash equivalents, accounts receivable and accounts payable, are recorded at carrying value, which
approximates fair value.
Non-Financial Assets and Liabilities
The Company’s non-financial assets include goodwill, intangible assets and property and equipment. Such assets are reported
at their carrying values and are not subject to recurring fair value measurements. The Company’s goodwill and its indefinite-lived
intangible assets (Versace and Jimmy Choo brands) are assessed for impairment at least annually, while its other long-lived assets,
including fixed assets and definite-lived intangible assets, are assessed for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be recoverable. The fair values of these assets were determined based
on Level 3 measurements using the Company’s best estimates of the amount and timing of future discounted cash flows, based
on historical experience, market conditions, current trends and performance expectations.
91
The following table details the carrying values and fair values of the Company’s long-lived assets that have been impaired
(in millions):
Fiscal 2019:
Fixed Assets
Lease Rights
Total
Fiscal 2018:
Fixed Assets
Lease Rights
Customer relationships
Total
Fiscal 2017:
Fixed Assets
Lease Rights
Total
Carrying Value
Prior to
Impairment
Fair Value
Impairment
Charge
$
$
$
$
$
$
26
3
29
31
5
1
37
187
33
220
$
$
$
$
$
$
7
1
8
3
1
—
4
18
3
21
$
$
$
$
$
$
19
2
21
28
4
1
33
169
30
199
Please refer to Note 7 and Note 8 for additional information.
There were no impairment charges related to goodwill or indefinite-lived intangible assets in any of the fiscal periods
presented.
14. Derivative Financial Instruments
During the first quarter of Fiscal 2019, the Company early-adopted the new hedge accounting guidance prescribed by ASU
2017-12. The cumulative impact of adoption, which related to elimination of ineffectiveness for the Company’s designated forward
foreign currency exchange contracts, was recorded within retained earnings as of the beginning of Fiscal 2019. See Note 2 for
additional information.
Forward Foreign Currency Exchange Contracts
The Company uses forward foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency
for certain of its transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and
seeks to minimize risks related to certain forecasted inventory purchases by using forward foreign currency exchange contracts.
The Company only enters into derivative instruments with highly credit-rated counterparties. The Company does not enter into
derivative contracts for trading or speculative purposes.
On September 24, 2018, in connection with the acquisition of Versace, the Company entered into forward foreign currency
exchange contracts with a total notional amount of €1.680 billion (approximately $2.001 billion) to mitigate its foreign currency
exchange risk through the expected closing date of the acquisition. These derivative contracts were not designated as accounting
hedges and were settled on December 21, 2018 as a result of the debt issued in connection with the acquisition of Versace (see
Note 11 for further information). Changes in fair value were recorded to foreign currency (gain) loss in the Company’s consolidated
statement of operations and comprehensive income for Fiscal 2019.
On July 25, 2017, in connection with the acquisition of Jimmy Choo, which closed on November 1, 2017, the Company
entered into a forward foreign currency exchange contract with a notional amount of £1.115 billion (approximately $1.469 billion)
to mitigate its foreign currency exchange risk through the date of the acquisition. This derivative contract was not designated as
an accounting hedge and was settled on October 30, 2017. Changes in fair value were recorded to foreign currency (gain) loss in
the Company’s consolidated statement of operations and comprehensive income for the Fiscal 2018.
92
Net Investment Hedges
During Fiscal 2019, the Company entered into fixed-to-fixed cross-currency swap agreements with aggregate notional
amounts of $2.190 billion to hedge its net investment in Euro-denominated subsidiaries and $44 million to hedge its net investment
in Japanese Yen-denominated subsidiaries against future volatility in the exchange rates between U.S. Dollar and these currencies.
Under the terms of these contracts, which have maturity dates between January 2022 and November 2024, the Company will
exchange the semi-annual fixed rate payments made under its Senior Notes for fixed rate payments of 0% to 1.718% in Euros and
0.89% in Japanese Yen. These contracts have been designated as net investment hedges.
When a cross-currency swap is used as a hedging instrument in a net investment hedge assessed under the spot method,
the cross-currency basis spread is excluded from the assessment of hedge effectiveness and is recognized as a reduction in interest
expense in the Company’s consolidated statements of operations and comprehensive income. Accordingly, the Company recorded
a reduction in interest expense of $17 million during Fiscal 2019.
The following table details the fair value of the Company’s derivative contracts, which are recorded on a gross basis in the
consolidated balance sheets as of March 30, 2019 and March 31, 2018 (in millions):
Notional Amounts
Assets
Liabilities (2)
March 30,
2019
March 31,
2018
March 30,
2019
March 31,
2018
March 30,
2019
March 31,
2018
Fair Values
Designated forward foreign currency
exchange contracts
Designated net investment hedge
Total designated hedges
Undesignated derivative contracts (4)
Total
$
$
$
166
2,234
2,400
199
2,599
$
$
$
162
—
162
—
162
$
$
$
5 (1) $
37 (3)
42
$
—
42
$
— $
—
— $
—
— $
— $
—
— $
5
5
$
8
—
8
—
8
(1) Recorded within prepaid expenses and other current assets in the Company’s audited consolidated balance sheets.
(2) Recorded within accrued expenses and other current liabilities in the Company’s audited consolidated balance sheets.
(3) Recorded within other assets in the Company’s audited consolidated balance sheets.
(4) Primarily includes undesignated hedges of foreign currency denominated intercompany balances and inventory
purchases.
The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance
sheets on a gross basis, as shown in the above table. However, if the Company were to offset and record the asset and liability
balances for its derivative instruments on a net basis in accordance with the terms of its master netting arrangements, which provide
for the right to setoff amounts for similar transactions denominated in the same currencies, the resulting impact as of March 30,
2019 and March 31, 2018 would be as follows (in millions):
Assets subject to master netting arrangements
Liabilities subject to master netting arrangements
Derivative assets, net
Derivative liabilities, net
Forward Currency Exchange
Contracts
March 30,
2019
March 31,
2018
Net Investment
Hedges
March 30,
2019
March 31,
2018
$
$
$
$
5
5
5
5
$
$
$
$
— $
8
$
— $
8
$
37
$
— $
37
$
— $
—
—
—
—
The Company’s master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties.
93
Changes in the fair value of the Company’s forward foreign currency exchange contracts that are designated as accounting
hedges are recorded in equity as a component of accumulated other comprehensive income (loss), and are reclassified from
accumulated other comprehensive income (loss) into earnings when the items underlying the hedged transactions are recognized
into earnings, as a component of cost of sales within the Company’s consolidated statements of operations and comprehensive
income (loss). The net gain or loss on net investment hedges are reported within foreign currency translation gains and losses
(“CTA”) as a component of accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets. Upon
discontinuation of the hedge, such amounts remain in CTA until the related investment is sold or liquidated.
The following table summarizes the pre-tax impact of the gains and losses on the Company's designated forward foreign
currency exchange contracts and net investment hedges (in millions):
Fiscal Year Ended
March 30, 2019
Pre-Tax Gains
Recognized in OCI
Fiscal Year Ended
March 31, 2018
Pre-Tax Loss
Recognized in OCI
Fiscal Year Ended
April 1, 2017
Pre-Tax Gain
Recognized in OCI
Designated forward foreign currency exchange
contracts
Designated net investment hedges
$
$
16
47
$
$
(22) $
— $
10
—
The following tables summarize the impact of the gains and losses within the consolidated statements of operations and
comprehensive income related to the designated forward foreign currency exchange contracts for Fiscal 2019 and Fiscal 2018 (in
millions):
Pre-Tax Loss Reclassified from
Accumulated OCI
March 31,
2018
April 1,
2017
March 30,
2019
Fiscal Year Ended
Location of
Loss
recognized
Total Cost of Sales
March 31,
2018
March 30,
2019
April 1,
2017
Designated forward
currency exchange
contracts
$
4
$
4
$
— Cost of Sales
$
2,058
$
1,860
$
1,833
The Company expects that substantially all of the amounts recorded in accumulated other comprehensive income (loss) for
its forward foreign currency exchange contracts will be reclassified into earnings during the next 12 months, based upon the timing
of inventory purchases and turnover.
Undesignated Hedges
During Fiscal 2019, Fiscal 2018 and Fiscal 2017, the Company recognized net losses of $78 million, net gains of $3 million
and net gains of $3 million respectively, related to changes in the fair value of undesignated forward foreign currency exchange
contracts within foreign currency loss (gain) in the Company’s consolidated statements of operations and comprehensive income.
The Fiscal 2019 amount was primarily comprised of a $77 million loss related to the derivative contracts entered into on September
25, 2018 to mitigate foreign currency exchange risk associated with the Versace acquisition that were settled on December 21,
2018. The Fiscal 2018 amount included a $5 million gain related to the derivative contract entered into on July 25, 2017 to mitigate
foreign currency exchange risk associated with the Jimmy Choo acquisition that was settled on October 30, 2017.
15. Shareholders’ Equity
Share Repurchase Program
During Fiscal 2019 and Fiscal 2018, the Company repurchased 3,718,237 shares and 7,700,959 shares, respectively, at a
cost of $200 million and $358 million, respectively, under its $1.0 billion share-repurchase program through open market
transactions, which expired on May 25, 2019. As of March 30, 2019, the remaining availability under the Company’s share
repurchase program was $442 million. Share repurchases may be made in open market or privately negotiated transactions, subject
to market conditions, applicable legal requirements, trading transactions under the Company’s insider trading policy and other
relevant factors. The program may be suspended or discontinued at any time.
94
The Company also has in place a “withhold to cover” repurchase program, which allows the Company to withhold ordinary
shares from certain executive officers and directors to satisfy minimum tax withholding obligations relating to the vesting of their
restricted share awards. During Fiscal 2019 and Fiscal 2018, the Company withheld 107,712 shares and 92,536 shares, respectively,
with a fair value of $7 million and $3 million, respectively, in satisfaction of minimum tax withholding obligations relating to the
vesting of restricted share awards.
16. Accumulated Other Comprehensive Income (Loss)
The following table details changes in the components of accumulated other comprehensive income (loss), net of taxes for
Fiscal 2019, Fiscal 2018 and Fiscal 2017 (in millions):
Balance at April 2, 2016
Other comprehensive (loss) income before reclassifications
Less: amounts reclassified from AOCI to earnings
Other comprehensive (loss) income, net of tax
Balance at April 1, 2017
Other comprehensive income (loss) before reclassifications
Less: amounts reclassified from AOCI to earnings
Other comprehensive income (loss), net of tax
Balance at March 31, 2018
Other comprehensive (loss) income before reclassifications
Less: amounts reclassified from AOCI to earnings
Other comprehensive (loss) income, net of tax
Balance at March 30, 2019
Foreign
Currency
Translation
(Losses)
Gains (1)
Net (Losses)
Gains on
Derivatives (2)
Other
Comprehensive
(Loss)/Gain
Attributable to
Capri
$
$
(78) $
(9)
—
(9)
(87)
148
—
148
61
(134)
—
(134)
(73) $
(3) $
9
—
9
6
(19)
(3)
(16)
(10)
14
(3)
17
7
$
(81)
—
—
—
(81)
129
(3)
132
51
(120)
(3)
(117)
(66)
(1)
(2)
Foreign currency translation gains and losses include net gains of $6 million and net losses of $9 million for Fiscal
2019 and Fiscal 2018, respectively, on intra-entity transactions that are of a long-term investment nature. Foreign
currency translation losses for Fiscal 2019 include a $105 million translation loss relating to the Jimmy Choo business,
a $33 million translation loss relating to the Versace business and a $39 million gain, net of taxes of $8 million
relating to the Company’s net investment hedges. Foreign currency translation gains for Fiscal 2018 includes an $89
million translation gain related to the Jimmy Choo business.
Reclassified amounts relate to the Company’s forward foreign currency exchange contracts for inventory purchases
and are recorded within cost of goods sold in the Company’s consolidated statements of operations and comprehensive
income. Other comprehensive income (loss) before reclassifications related to derivative instruments for Fiscal 2019,
Fiscal 2018, and Fiscal 2017 is net of a tax (benefits) provision of $(2) million, $(3) million, and $1 million,
respectively. All other tax effects were not material.
17. Share-Based Compensation
The Company issues equity grants to certain employees and directors of the Company at the discretion of the Company’s
Compensation and Talent Committee. The Company has two equity plans, one stock option plan adopted in Fiscal 2008 (as
amended and restated, the “2008 Plan”), and the Omnibus Incentive Plan adopted in the third fiscal quarter of Fiscal 2012 and
amended and restated with shareholder approval in May 2015 (the “Incentive Plan”). The 2008 Plan only provided for grants of
share options and was authorized to issue up to 23,980,823 ordinary shares. As of March 30, 2019, there were no shares available
to grant equity awards under the 2008 Plan. The Incentive Plan allows for grants of share options, restricted shares and RSUs, and
other equity awards, and authorizes a total issuance of up to 15,246,000 ordinary shares. At March 30, 2019, there were 4,402,559
ordinary shares available for future grants of equity awards under the Incentive Plan. Option grants issued from the 2008 Plan
95
generally expire ten years from the date of the grant, and those issued under the Incentive Plan generally expire seven years from
the date of the grant.
Share Options
Share options are generally exercisable at the fair market value on the date of grant and vest on a pro-rata basis over a four(cid:3)
year service period. The following table summarizes the share options activity during Fiscal 2019, and information about options
outstanding at March 30, 2019:
Outstanding at March 31, 2018
Granted
Exercised
Canceled/forfeited
Outstanding at March 30, 2019
Vested or expected to vest at March 30, 2019
Vested and exercisable at March 30, 2019
Number of
Options
$
3,796,620
224,582
$
(1,847,096) $
(42,847) $
$
$
$
2,131,259
2,116,908
1,585,874
Weighted
Average
Exercise price
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
32.78
67.52
15.97
49.55
50.67
50.67
49.96
2.90
2.90
2.16
$
$
21
20
There were 545,385 unvested options and 1,585,874 vested options outstanding at March 30, 2019. The total intrinsic value
of options exercised during Fiscal 2019 and Fiscal 2018 was $94 million and $48 million, respectively. The cash received from
options exercised during Fiscal 2019 and Fiscal 2018 was $29 million and $14 million, respectively. As of March 30, 2019, the
remaining unrecognized share-based compensation expense for nonvested share options was $4 million, which is expected to be
recognized over the related weighted-average period of approximately 2.18 years.
The weighted average grant date fair value for options granted during Fiscal 2019, Fiscal 2018 and Fiscal 2017, was $24.49,
$11.62 and $13.79, respectively. The following table represents assumptions used to estimate the fair value of options:
Expected dividend yield
Volatility factor
Weighted average risk-free interest rate
Expected life of option
Restricted Awards
March 30,
2019
0.0%
36.9%
2.8%
4.85 years
Fiscal Years Ended
March 31,
2018
0.0%
36.3%
1.8%
4.69 years
April 1,
2017
0.0%
30.1%
1.1%
4.75 years
The Company grants restricted share units at the fair market value on the date of the grant. Expense for restricted awards
is based on the closing market price of the Company’s shares on the date of grant and is recognized ratably over the vesting period
net of expected forfeitures.
The Company grants two types of RSU awards: time-based RSUs and performance-based RSUs. Time-based RSUs
generally vest in full either generally around the first anniversary of the date of grant for our independent directors, or in equal
increments on each of the four anniversaries of the date of grant. Performance-based RSUs vest in full on the second or third
anniversary of the date of grant, subject to the employee’s continued employment during the vesting period (unless the employee
is retirement-eligible) and only if certain pre-established cumulative performance targets are met. Expense related to performance-
based RSUs is recognized ratably over the performance period, net of forfeitures, based on the probability of attainment of the
related performance targets. The potential number of shares that may be earned ranges from 0%, if the minimum level of performance
is not attained, to 150%, if the level of performance is at or above the predetermined maximum achievement level. Restricted
share grants generally vested in equal increments on each of the four anniversaries of the date of grant.
96
The following table summarizes restricted share activity during Fiscal 2019:
Unvested at March 31, 2018
Granted
Vested
Canceled/forfeited
Unvested at March 30, 2019
Restricted Shares
Number of Unvested
Restricted Shares
Weighted
Average Grant
Date Fair Value
64,148
$
— $
(63,719) $
(429) $
— $
90.75
—
90.82
79.85
—
The total fair value of restricted shares vested was $4 million, $4 million and $7 million during Fiscal 2019, Fiscal 2018
and Fiscal 2017, respectively. As of March 30, 2019, there was no remaining unrecognized share-based compensation expense
for non-vested restricted share grants.
The following table summarizes the RSU activity during Fiscal 2019:
Unvested at March 31, 2018
Granted
Decrease due to performance condition
Vested
Canceled/forfeited
Unvested at March 30, 2019
Service-based
Performance-based
Number of
Restricted
Share Units
Weighted
Average Grant
Date Fair Value
Number of
Restricted
Share Units
Weighted
Average Grant
Date Fair Value
2,127,517
2,601,673
$
$
— $
(712,111) $
(177,217) $
$
3,839,862
42.53
48.46
—
43.83
46.91
46.11
$
657,532
316,663
$
(101,744) $
(105,900) $
(29,477) $
$
737,074
50.16
54.18
47.10
47.10
60.34
52.34
The total fair value of service-based RSUs vested during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $47 million, $18
million and $14 million, respectively. The total fair value of performance-based RSUs vested during Fiscal 2019, Fiscal 2018 and
Fiscal 2017 was $7 million, $4 million and $11 million, respectively. As of March 30, 2019, the remaining unrecognized share-
based compensation expense for non-vested service-based and performance-based RSU grants was $127 million and $25 million,
respectively, which is expected to be recognized over the related weighted-average periods of approximately 3.35 years and 2.08
years, respectively.
Share-Based Compensation Expense
The following table summarizes compensation expense attributable to share-based compensation for Fiscal 2019, Fiscal
2018 and Fiscal 2017 (in millions):
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
Share-based compensation expense
Tax benefits related to share-based compensation expense
$
$
60
11
$
$
50
10
$
$
34
11
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. The Company estimates forfeitures based on its historical forfeiture rate to date. The estimated value of future
forfeitures for equity grants as of March 30, 2019 is approximately $17 million.
97
18.(cid:3)Taxes
The Company is a United Kingdom tax resident and is incorporated in the British Virgin Islands. Capri’s subsidiaries are
subject to taxation in the U.S. and various other foreign jurisdictions, which are aggregated in the “Non-U.S.” information captioned
below.
Income before provision for income taxes consisted of the following (in millions):
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
U.S.
Non-U.S.
Total income before provision for income taxes
$
$
191
430
621
$
$
124
618
742
$
$
The provision for income taxes was as follows (in millions):
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
Current
U.S. Federal
U.S. State
Non-U.S.
Total current
Deferred
U.S. Federal
U.S. State
Non-U.S.
Total deferred
Total provision for income taxes
$
$
82 (2) $
24
44
150
(34) (2)
(4)
(33)
(71)
79
$
48
16
77
141
24 (1)
1
(16)
9
$
150
$
229
460
689
131
20
46
197
(34)
(5)
(21)
(60)
137
(1)
(2)
Includes an $18 million provision related to the U.S. Tax Act one time revaluation of deferred tax assets.
Includes a $25 million current tax detriment and equal deferred tax benefit related to the U.S. Tax Act impact to business
interest disallowance provisions.
98
The Company’s provision for income taxes for the years ended March 30, 2019, March 31, 2018 and April 1, 2017 was
different from the amount computed by applying the statutory U.K. income tax rate to the underlying income from continuing
operations before income taxes and equity in net income of affiliates as a result of the following:
Provision for income taxes at the U.K. statutory tax rate
State and local income taxes, net of federal benefit
Effects of global financing arrangements
U.S. tax reform
Differences in tax effects on foreign income
Liability for uncertain tax positions
Effect of changes in valuation allowances on deferred tax
assets
Excess tax benefits related to stock-based compensation
Transaction costs
Withholding tax
Other
Effective tax rate
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
19.0 %
0.9 %
(8.1)%
— %
(1.8)% (2)
1.3 %
2.8 % (3)
(2.6)%
1.5 %
0.6 %
(0.9)%
12.7 %
19.0 %
0.5 %
(15.6)%
2.0 % (1)
6.7 %
6.6 %
0.3 %
(0.8)%
0.9 %
1.2 %
(0.6)%
20.2 %
20.0 %
1.3 %
(13.7)%
— %
11.1 %
— %
0.5 %
— %
— %
— %
0.7 %
19.9 %
(1)
Includes an $18 million expense related to the re-measurement of certain net deferred tax assets in connection with
U.S. tax reform.
(2) Mainly attributable to the United States statutory federal income tax rate change from a blended rate for Fiscal 2018
of 31.54% to 21% in Fiscal 2019.
(3)
Includes an $11 million detriment related to a United Kingdom capital loss.
U.S. Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including, among
other things, lowering U.S. statutory federal tax rate and implementing a territorial tax system. The U.S. statutory federal tax rate
has been decreased to 21% for Fiscal 2019 and thereafter. The Tax Act also added many new provisions, including changes to
bonus depreciation, limits on the deductions for executive compensation and interest expense, a tax on global intangible low-taxed
income, the base erosion anti-abuse tax and a deduction for foreign derived intangible income.
In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 to provide guidance for
companies that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the
recording of the related tax impacts. Subsequently, as a result of finalizing its full Fiscal 2018 operating results, the issuance of
new interpretive guidance, and other analyses performed, the Company finalized its accounting related to the impacts of the Tax
Act and recorded immaterial measurement period adjustments in Fiscal 2019.
99
Significant components of the Company’s deferred tax assets (liabilities) consist of the following (in millions):
Deferred tax assets
Inventories
Payroll related accruals
Deferred rent
Net operating loss carryforwards
Stock compensation
Sales allowances
Accrued interest
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Goodwill and intangibles
Depreciation
Total deferred tax liabilities
Net deferred tax liabilities
Fiscal Years Ended
March 30,
2019
March 31,
2018
$
$
$
22
2
34
61
13
26
41
31
230
(40)
190
(534)
18
(516)
(326) $
4
2
24
31
17
6
—
27
111
(14)
97
(241)
14
(227)
(130)
The Company maintains valuation allowances on deferred tax assets applicable to subsidiaries in jurisdictions for which
separate income tax returns are filed and where realization of the related deferred tax assets from future profitable operations is
not reasonably assured. Deferred tax valuation allowances increased approximately $29 million, $8 million and $4 million in
Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. The Company remeasured and reduced valuation allowances amounting
to approximately $3 million in Fiscal 2019 and released valuation allowances of approximately $1 million and $1 million in Fiscal
2018 and Fiscal 2017, respectively, as a result of the attainment and expectation of achieving profitable operations in certain
countries comprising the Company’s European operations, for which deferred tax valuation allowances had been previously
established.
At March 30, 2019, the Company had non-U.S. and U.S. net operating loss carryforwards of approximately $405 million,
a portion of which will begin to expire in 2020.
As of March 30, 2019 and March 31, 2018, the Company had liabilities related to its uncertain tax positions, including
accrued interest, of approximately $203 million and $107 million, respectively, which are included in other long-term liabilities
in the Company’s audited consolidated balance sheets. The March 30, 2019 balance includes certain tax reserves which were
recorded in purchase accounting upon the acquisition of Versace, in addition to foreign income tax reserves the Company recorded
during Fiscal 2019.
100
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately
$112 million, $101 million and $27 million as of March 30, 2019, March 31, 2018 and April 1, 2017, respectively. A reconciliation
of the beginning and ending amounts of unrecognized tax benefits, excluding accrued interest, for Fiscal 2019, Fiscal 2018 and
Fiscal 2017, are presented below (in millions):
Fiscal Years Ended
March 30,
2019
March 31,
2018
April 1,
2017
Unrecognized tax benefits beginning balance
Additions related to prior period tax positions
Additions related to current period tax positions
Decreases in prior period positions due to lapses in statute of
limitations
Decreases related to prior period tax positions
Decreases related to audit settlements
Unrecognized tax benefits ending balance
$
$
$
101
81 (1)
21
(1)
(3)
(7)
192
$
27
30
45
(1)
—
—
101
$
$
17
2
10
(2)
—
—
27
(1) Primarily relates to the Versace acquisition.
The Company classifies interest expense and penalties related to unrecognized tax benefits as components of the provision
for income taxes. Interest expense recognized in the consolidated statements of operations and comprehensive income for Fiscal
2019, Fiscal 2018 and Fiscal 2017 was approximately $11 million, $7 million and $3 million, respectively.
The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future
events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes
of limitations. The Company anticipates that the balance of gross unrecognized tax benefits, excluding interest and penalties, will
be reduced by approximately $34 million during the next 12 months, primarily due to the anticipated tax ruling regarding the
deductibility of an intercompany loss in one of our subsidiaries. However, the outcomes and timing of such events are highly
uncertain and changes in the occurrence, expected outcomes, and timing of such events could cause the Company’s current estimate
to change materially in the future.
The Company files income tax returns in the U.S., for federal, state, and local purposes, and in certain foreign jurisdictions.
With few exceptions, the Company is no longer subject to examinations by the relevant tax authorities for years prior to its fiscal
year ended April 2, 2016.
Prior to the enactment of the Tax Act, the Company's undistributed foreign earnings were considered permanently reinvested
and, as such, United States federal and state income taxes were not previously recorded on these earnings. As a result of the Tax
Act, substantially all of the Company’s earnings in foreign subsidiaries generated prior to the enactment of the Tax Act were
deemed to have been repatriated and, as a result, the Company recorded a one-time transition tax of $3 million during Fiscal 2018.
The Company's intent is to either reinvest indefinitely substantially all of its foreign earnings outside of the United States or
repatriate them tax neutrally. However, if in the future earnings are repatriated, the potential exists that the Company may be
required to accrue and pay additional taxes, including any applicable foreign withholding tax and income taxes. It is not practicable
to estimate the amount of tax that might be payable if these earnings were repatriated due to the complexities associated with the
hypothetical calculation.
19. Retirement Plans
The Company maintains defined contribution plans for employees, who generally become eligible to participate after three
months of service. Features of these plans allow participants to contribute to a plan a percentage of their compensation, up to
statutory limits depending upon the country in which a plan operates, and provide for mandatory and/or discretionary matching
contributions by the Company, which vary by country. During Fiscal 2019, Fiscal 2018, and Fiscal 2017, the Company recognized
expenses of approximately $14 million, $12 million, and $9 million, respectively, related to these retirement plans.
101
20. Segment Information
Prior to the fourth quarter of Fiscal 2019, the Company organized its business into four operating and reportable segments
- MK Retail, MK Wholesale, MK Licensing and Jimmy Choo. As a result of the acquisition of Versace, effective beginning in the
fourth quarter of Fiscal 2019, the Company realigned its operating and reportable segments according to the new structure of its
business. As a result, the Company now operates its business through three operating segments—Versace, Jimmy Choo and Michael
Kors, which are based on its business activities and organization. The reportable segments are segments of the Company for which
separate financial information is available and for which operating results are evaluated regularly by the Company’s chief operating
decision maker (“CODM”) in deciding how to allocate resources, as well as in assessing performance. The primary key performance
indicators are revenue and operating income for each segment. The Company’s reportable segments represent components of the
business that offer similar merchandise, customer experience and sales/marketing strategies.
The Company’s three reportable segments are as follows:
•
•
Versace — segment includes revenue generated through the sale of Versace luxury ready-to-wear, accessories, footwear
and home furnishings through directly operated Versace boutiques throughout North America (United States and Canada),
EMEA and certain parts of Asia, as well as through Versace outlet stores and e-commerce sites. In addition, revenue is
generated through wholesale sales to distribution partners (including geographic licensing arrangements that allow third
parties to use the Versace trademarks in connection with retail and/or wholesale sales of Versace branded products in
specific geographic regions), multi-brand department stores and specialty stores worldwide, as well as through product
license agreements in connection with the manufacturing and sale of jeans, fragrances, watches, jewelry and eyewear.
Jimmy Choo — segment includes revenue generated through the sale of Jimmy Choo luxury footwear, handbags and
small leather goods through directly operated Jimmy Choo stores throughout the Americas, EMEA and certain parts of
Asia, through its e-commerce sites, as well as through wholesale sales of luxury goods to distribution partners (including
geographic licensing arrangements that allow third parties to use the Jimmy Choo trademarks in connection with retail
and/or wholesale sales of Jimmy Choo branded products in specific geographic regions), multi-brand department stores
and specialty stores worldwide. In addition, revenue is generated through product licensing agreements, which allow
third parties to use the Jimmy Choo brand name and trademarks in connection with the manufacturing and sale of
fragrances, sunglasses and eyewear.
• Michael Kors — segment includes revenue generated through the sale of Michael Kors products through four primary
Michael Kors retail store formats: “Collection” stores, “Lifestyle” stores (including concessions), outlet stores and e-
commerce, through which the Company sells Michael Kors products, as well as licensed products bearing the Michael
Kors name, directly to the end consumer throughout the Americas (U.S., Canada and Latin America, excluding Brazil),
Europe and certain parts of Asia. The Michael Kors e-commerce business includes e-commerce sites in the U.S., Canada,
certain parts of Europe, China, Japan and South Korea. The Company also sells Michael Kors products directly to
department stores, primarily located across the Americas and Europe, to specialty stores and travel retail shops in the
Americas, Europe and Asia, and to its geographic licensees in certain parts of EMEA (Europe, Middle East and Africa),
Asia and Brazil. In addition, revenue is generated through product and geographic licensing arrangements, which allow
third parties to use the Michael Kors brand name and trademarks in connection with the manufacturing and sale of
products, including watches, jewelry, fragrances and eyewear.
In addition to these reportable segments, the Company has certain corporate costs that are not directly attributable to its
brands and, therefore, are not allocated to segments. Such costs primarily include certain administrative, corporate occupancy,
and information systems expenses, including enterprise resource planning system implementation costs. In addition, certain other
costs are not allocated to segments, including restructuring and other charges (including transaction and transition costs related
to the Company’s recent acquisitions) and impairment costs. The new segment structure is consistent with how the Company’s
CODM plans and allocates resources, manages the business and assesses performance. All prior period segment information has
been recast to reflect the realignment of the Company’s segment reporting structure on a comparable basis. All intercompany
revenues are eliminated in consolidation and are not reviewed when evaluating segment performance.
102
The following table presents the key performance information of the Company’s reportable segments (in millions):
Total revenue:
Versace
Jimmy Choo
Michael Kors
Total revenue
Income from operations:
Versace
Jimmy Choo
Michael Kors
Total segment income from operations
Less: Corporate expenses
Restructuring and other charges
Impairment of long-lived assets
Total income from operations
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
$
$
$
$
137
590
4,511
5,238
$
$
(11) $
20
964
973
(93)
(124)
(21)
735
$
— $
223
4,496
4,719
$
— $
(4)
975
971
(87)
(102)
(33)
749
$
Depreciation and amortization expense for each segment are as follows (in millions):
Depreciation and amortization(1):
Versace
Jimmy Choo
Michael Kors
Total depreciation and amortization
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
$
$
9
34
182
225
$
$
— $
13
195
208
$
—
—
4,494
4,494
—
—
979
979
(79)
(11)
(199)
690
—
—
220
220
(1) Excluded from the above table are impairment charges, which are detailed in the below table and in Note 7, Note 8 and Note
13.
The Company does not have identifiable assets separated by segment. See Note 8 to the accompanying consolidated financial
statements for the Company’s goodwill by reportable segment.
Total revenue (based on country of origin) and long-lived assets by geographic location are as follows (in millions):
March 30,
2019
Fiscal Years Ended
March 31,
2018
April 1,
2017
Revenue:
The Americas (U.S., Canada and Latin America)(1)
EMEA
Asia
Total revenue
$
$
3,182
1,279
777
5,238
$
$
3,033
1,093
593
4,719
$
$
3,141
944
409
4,494
103
March 30,
2019
As of
March 31,
2018
April 1,
2017
Long-lived assets:
The Americas (U.S., Canada and Latin America)(1)
EMEA
Asia
Total Long-lived assets:
$
$
319
2,123
466
2,908
$
$
328
1,050
441
1,819
$
$
356
198
456
1,010
(1) Net revenues earned in the U.S. during Fiscal 2019, Fiscal 2018, and Fiscal 2017 were $2.972 billion, $2.818 billion and
$2.935 billion, respectively. Long-lived assets located in the U.S. as of March 30, 2019 and March 31, 2018 were $296 million
and $303 million, respectively.
Total revenue by major product category are as follows (in millions):
March 30,
2019
$
$
3,139
1,023
698
218
156
4
5,238
% of
Total
59.9%
19.5%
13.3%
4.2%
3.0%
0.1%
Fiscal Years Ended
March 31,
2018
% of
Total
April 1,
2017
% of
Total
$
$
3,057
657
605
250
150
—
4,719
64.8% $
13.9%
12.8%
5.3%
3.2%
—%
$
3,062
462
543
281
146
—
4,494
68.1%
10.3%
12.1%
6.3%
3.2%
—%
Accessories
Footwear
Apparel
Licensed product
Licensing revenue
Home
Total Revenue
21. Related Party Transactions
The Company’s Chief Creative Officer for the Michael Kors brand, and the Company’s Chief Executive Officer, John Idol,
and certain of the Company’s former shareholders, including Sportswear Holdings Limited, jointly owned Michael Kors Far East
Holdings Limited, a BVI company, prior to the Company’s acquisition of MKHKL on May 31, 2016, which eliminated their
ownership interests. On April 1, 2011, the Company entered into certain licensing agreements with certain subsidiaries of Michael
Kors Far East Holdings Limited, including MKHKL, (the “Licensees”), which provided the Licensees with certain exclusive rights
for use of the Company’s trademarks within China, Hong Kong, Macau and Taiwan, and to import, sell, advertise and promote
certain of the Company’s products in these regions, as well as to own and operate stores bearing the Company’s tradenames. The
agreements between the Company and the Licensees were scheduled to expire on March 31, 2041, and could be terminated by
the Company at certain intervals if minimum sales benchmarks were not met. Royalties earned under these agreements were
approximately $1 million during the two months ended May 31, 2016 preceding the acquisition, driven by Licensee adjusted net
sales of the Company’s goods, as defined in the licensing agreement, to their customers of approximately $29 million. In addition,
the Company sold certain inventory items to the Licensees through its wholesale segment at terms consistent with those of similar
licensees in the region. During the two months ended May 31, 2016 preceding the acquisition, amounts recognized as net sales
in the Company’s consolidated statement of operations and comprehensive income related to these sales were approximately $8
million. Please refer to Note 4 for additional information relating to the Company’s acquisition of MKHKL on May 31, 2016.
A former executive officer of the Company (who is no longer a related party as of October 31, 2016) is married to a former
employee of one of the Company’s suppliers of fixtures for its shop-in-shops, retail stores and showrooms. Purchases from this
supplier, while deemed to be a related party, were approximately $2 million during Fiscal 2017.
104
22. Selected Quarterly Financial Information (Unaudited)
The following table summarizes the Fiscal 2019 and Fiscal 2018 quarterly results (dollars in millions):
Fiscal 2019
Total revenue
Gross profit
Income from operations
Net income
Net income attributable to Capri
Weighted average ordinary shares
outstanding:
Basic
Diluted
Fiscal 2018
Total revenue
Gross profit
Income from operations
Net income
Net income attributable to Capri
Weighted average ordinary shares
outstanding:
Basic
Diluted
Fiscal Quarter Ended (1)
June 30,
2018
September 29,
2018
December 29,
2018
March 30,
2019
$
$
$
$
$
$
1,203
751
$
215 (2) $
$
186
$
186
$
1,253
763
$
190 (3) $
$
137
$
138
$
1,438
873
$
290 (4) $
$
200
$
200
1,344
793
40 (5)
19
19
149,502,101
152,399,655
149,575,112
151,705,685
149,183,049
150,268,424
150,801,608
152,083,632
Fiscal Quarter Ended (1)
July 1,
2017
September 30,
2017
December 30,
2017
March 31,
2018
$
$
$
$
$
952
575
149
126
126
$
$
$
$
$
$
1,147
691
$
199 (6) $
$
202
$
202
$
1,440
884
$
314 (7) $
$
220
$
220
1,180
709
87 (8)
44
44
154,486,898
156,871,518
151,781,340
154,168,094
152,047,963
154,623,339
150,818,144
154,252,751
(1) All fiscal quarters presented contain 13 weeks.
(2) Fiscal quarter ended June 30, 2018 includes impairment charges of $4 million, restructuring charges of $4 million and
acquisition-related transition costs of $7 million.
(3) Fiscal quarter ended September 29, 2018 includes impairment charges of $7 million, acquisition-related transition costs
of $16 million and restructuring charges of $2 million.
(4) Fiscal quarter ended December 29, 2018 includes impairment charges of $6 million, acquisition-related transaction
and transition costs of $12 million, and restructuring charges of $8 million.
(5) Fiscal quarter ended March 30, 2019 includes impairment charges of $4 million, acquisition-related transaction and
transition costs of $44 million, and restructuring charges of $31 million.
(6) Fiscal quarter ended September 30, 2017 includes impairment charges of $16 million, acquisition-related transaction
and transition costs of $16 million, and restructuring charges of $6 million.
(7) Fiscal quarter ended December 30, 2017 includes impairment charges of $3 million, acquisition-related transaction
and transition costs of $26 million, and restructuring charges of $2 million.
(8) Fiscal quarter ended March 31, 2018 includes impairment charges of $14 million, and acquisition-related transaction
and transition costs of $7 million, and restructuring charges of $44 million.
See Note 10 for additional information related to acquisition-related transaction and transition costs, as well as restructuring
charges and Note 13 for additional information related to impairment charges.
105
23.(cid:3)Non-cash Investing Activities
Significant non-cash investing activities for Fiscal 2019, Fiscal 2018, and Fiscal 2017 included non-cash allocations of the
fair values of the net assets acquired in connection with the Company’s acquisitions of Versace, Jimmy Choo and MKHKL,
respectively. In addition, non-cash investing activities for Fiscal 2019 included an investment of 2.4 million of the Company’s
ordinary shares made by the Versace family at acquisition date, which was valued at $91 million. See Note 4 for additional
information.
There were no other significant non-cash investing or financing activities during the fiscal periods presented.
106
LIST OF SUBSIDIARIES OF CAPRI HOLDINGS LIMITED
Entity Name
Michael Kors (UK) Holdings Limited
Michael Kors (UK) Limited
Michael Kors (USA) Holdings, Inc.
Michael Kors (USA), Inc.
Michael Kors Retail, Inc.
Michael Kors Stores (California), Inc.
Michael Kors, L.L.C.
Michael Kors Stores, L.L.C.
Michael Kors Aviation, L.L.C.
Michael Kors Virginia, LLC
Michael Kors (Canada) Co.
Michael Kors (Canada) Holdings Ltd.
Michael Kors (Switzerland) GmbH
Michael Kors (Switzerland) Holdings GmbH
Michael Kors (Switzerland) International GmbH
Michael Kors (Switzerland) Retail GmbH
Michael Kors (UK) Intermediate Ltd.
Michael Kors Japan K.K.
Michael Kors Limited
MK (Shanghai) Commercial Trading Company Limited
Michael Kors Belgium BVBA
Michael Kors (Bucharest Store) S.R.L.
Michael Kors (France) SAS
Michael Kors (Germany) GmbH
Michael Kors Spain, S.L.U.
Michael Kors Italy S.R.L. Con Socio Unico
Michael Kors (Austria) GmbH
Michael Kors (Netherlands) B.V.
Michael Kors (Poland) Sp. z o.o.
Michael Kors (Europe) B.V.
Michael Kors (Czech Republic) s.r.o.
Michael Kors (Luxembourg) Retail S.à r.l.
Michael Kors (Portugal) Lda.
Michael Kors (Ireland) Limited
Michael Kors (Sweden) AB
Michael Kors (Denmark) ApS
Michael Kors (Norway) AS
Michael Kors (Hungary) Kft.
Michael Kors Korea Yuhan Hoesa
Michael Kors (Finland) Oy
Michael Kors (Latvia) SIA
UAB Michael Kors (Lithuania)
MK (Panama) Holdings, S.A.
Michael Kors (HK) Limited
Michael Kors Trading (Shanghai) Company Limited
MKJC Limited
Exhibit 21.1
Jurisdiction of Formation
United Kingdom
United Kingdom
Delaware
Delaware
Delaware
Delaware
Delaware
New York
Delaware
Virginia
Nova Scotia
Nova Scotia
Switzerland
Switzerland
Switzerland
Switzerland
United Kingdom
Japan
Hong Kong
China
Belgium
Romania
France
Germany
Spain
Italy
Austria
Netherlands
Poland
Netherlands
Czech Republic
Luxembourg
Portugal
Ireland
Sweden
Denmark
Norway
Hungary
South Korea
Finland
Latvia
Lithuania
Panama
Hong Kong
China
British Virgin Islands
Entity Name
Jimmy Choo Group Limited
Jimmy Choo (Holdings) Limited
Choo EUR Finance Limited
Choo USD Finance Limited
Choo Luxury Group Limited
Choo Luxury Holdings Limited
Choo Luxury Finance Limited
J. Choo (Jersey) Limited
J. Choo Limited
JC Industry S.r.l
Jimmy Choo Korea Limited
JC Gulf Trading LLC
J Choo USA Inc.
J Choo Florida Inc.
J. Choo Canada Inc.
J. Choo (OS) Limited
J Choo Germany GmbH
ITACHOO S.r.l.
Jimmy Choo Florence S.r.l.
FRANCHOO SAS
JIMMY CHOOO SPAIN S.L.U.
J Choo (Switzerland) AG
J. Choo (Belgium) BVBA
J. Choo Netherlands B.V.
J. Choo Czech s.r.o
J. Choo Russia JV Limited
J. Choo RUS LLC
J. Choo (Austria) GmbH
J. Choo Supply SA
J. Choo Hong Kong JV Limited
Jimmy Choo Hong Kong Limited
J.Choo Japan JV Limited
Jimmy Choo Tokyo K.K.
J. Choo (Asia) Limited
Jimmy Choo (Shanghai) Trading Co. Limited
J. Choo Singapore JV Limited
Jimmy Choo (Singapore) Pte. Limited
Jimmy Choo (Malaysia) Sdn. Bhd.
JC Services ME DMCC LLC
J. Choo Sweden AB
Capri Operations Limited
Capri Finance Limited
Michael Kors (UK) International Limited
Jimmy Choo (Australia) Pty Ltd
J. Choo Norway AS
J. Choo Denmark ApS
JC ME Trading DWC LLC
Victory S.R.L.
GIVI Holding S.R.L.
Gianni Versace S.R.L.
Versace France S.A.
Versace Belgique S.A.
Versace Taiwan Co., Limited
Jurisdiction of Formation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
United Kingdom
Italy
South Korea
UAE
Delaware
Delaware
British Columbia
United Kingdom
Germany
Italy
Italy
France
Spain
Switzerland
Belgium
Netherlands
Czech Republic
United Kingdom
Russia
Austria
Switzerland
Hong Kong
Hong Kong
United Kingdom
Japan
Hong Kong
China
United Kingdom
Singapore
Malaysia
DMCC (UAE free zone)
Sweden
British Virgin Islands
Malta
United Kingdom
Australia
Norway
Denmark
DWC (UAE free zone)
Italy
Italy
Italy
France
Belgium
Taiwan
Entity Name
Versace Do Brasil Ltda
Versace Malaysia Sdn. Bhd.
Versace Singapore Pte. Ltd.
Versace Asia Pacific Limited
Versace Suisse S.A.
Versace Canada Inc.
Versace Textil Sanayi ve Ticaret Anonim Sirteki
Versace (Thailand) Co., Ltd.
Versace China Ltd.
Versace Macau Limited
G. Versace Hellas S.A.
Creek Apartments Limited
Versace U.K. PLC
Versace Korea Co. Ltd.
Versace Deutschland GmbH
Versace España, S.A.U.
Versace USA Inc.
Versace Australia PTY Limited
Versace Japan Co. Ltd.
Versace Monte-Carlo S.A.M.
Jurisdiction of Formation
Brazil
Malaysia
Singapore
Hong Kong
Switzerland
British Columbia
Turkey
Thailand
China
Macau
Greece
UAE
United Kingdom
South Korea
Germany
Spain
New York
Australia
Japan
France
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-178486) pertaining to the
Amended and Restated Omnibus Incentive Plan of Capri Holdings Limited and subsidiaries of our reports dated May 29, 2019
with respect to the consolidated financial statements and the effectiveness of internal control over financial reporting of Capri
Holdings Limited and subsidiaries, included in this Annual Report (Form 10-K) for the year ended March 30, 2019.
Exhibit 23.2
/s/ ERNST & YOUNG LLP
New York, New York
May 29, 2019
Exhibit 31.1
CERTIFICATIONS
I, John D. Idol, certify that:
1.
I have reviewed this Form 10-K of Capri Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent function):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: May 29, 2019
By:
/s/ John D. Idol
John D. Idol
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Thomas J. Edwards, Jr., certify that:
1.
I have reviewed this Form 10-K of Capri Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent function):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: May 29, 2019
By:
/s/ Thomas J. Edwards, Jr.
Thomas J. Edwards, Jr
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report on Form 10-K of Capri Holdings Limited (the “Company”) for the year ended March 30,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Idol, Chief Executive
Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934,
as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Capri Holdings Limited.
Date: May 29, 2019
/S/ John D. Idol
John D. Idol
Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this Report.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report on Form 10-K of Capri Holdings Limited (the “Company”) for the year ended March 30,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Edwards, Jr., Chief
Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934,
as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Capri Holdings Limited.
Date: May 29, 2019
/S/ Thomas J. Edwards, Jr.
Thomas J. Edwards, Jr.
Chief Financial Officer
(Principal Financial Officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this Report.
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