Capri Holdings Limited Announces First Quarter Fiscal 2024 Results

First Quarter Results Slightly Ahead of Expectations

Announced Planned Acquisition of Capri Holdings Limited by Tapestry, Inc.

Capri Holdings Limited (NYSE:CPRI), a global fashion luxury group, today announced its financial results for the first quarter of Fiscal 2024 ended July 1, 2023.

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(Photo: Business Wire)

(Photo: Business Wire)

First Quarter Fiscal 2024 Highlights

  • Revenue decreased 9.6% on a reported basis and 9.3% in constant currency
  • Adjusted operating margin of 9.0%
  • Adjusted earnings per share of $0.74

John D. Idol, the Company's Chairman and Chief Executive Officer, said, "As announced earlier today, the planned acquisition of Capri Holdings by Tapestry marks a major milestone for our company. It is a testament to all that our teams have achieved in building Versace, Jimmy Choo and Michael Kors into the iconic and powerful luxury fashion houses they are today. We are confident this combination will deliver immediate value to our shareholders. It will also provide new opportunities for our dedicated employees around the world as Capri Holdings becomes part of a larger and more diversified company. By joining with Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach while preserving the unique DNA of our brands."

First Quarter Fiscal 2024 Results

Financial Results and non-GAAP Reconciliation

The Company’s results are reported in this press release in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and on an adjusted, non-GAAP basis. A reconciliation of GAAP to non-GAAP financial information is provided at the end of this press release.

Overview of Capri Holdings First Quarter Fiscal 2024 Results

  • Total revenue of $1.23 billion decreased 9.6% compared to last year. On a constant currency basis, total revenue decreased 9.3%.
  • Gross profit was $812 million and gross margin was 66.1%, compared to $901 million and 66.3% in the prior year. Adjusted gross profit was $812 million and adjusted gross margin was 66.1%, compared to $900 million and 66.2% in the prior year.
  • Income from operations was $80 million and operating margin was 6.5%, compared to $231 million and 17.0% in the prior year. Adjusted income from operations was $111 million and operating margin was 9.0%, compared to $251 million and 18.5% in the prior year.
  • Net income was $48 million, or $0.41 per diluted share, compared to $201 million, or $1.40 per diluted share, in the prior year. Adjusted net income was $88 million, or $0.74 per diluted share, compared to $215 million, or $1.50 per diluted share, in the prior year.
  • Net inventory as of July 1, 2023 was $1.166 billion, an 8% decrease compared to the prior year.

Versace First Quarter Fiscal 2024 Results

  • Versace revenue of $259 million decreased 5.8% on both a reported and constant currency basis.
  • Versace operating income was $3 million and operating margin was 1.2%, compared to $52 million and 18.9% in the prior year.

Jimmy Choo First Quarter Fiscal 2024 Results

  • Jimmy Choo revenue of $183 million increased 6.4% compared to the prior year. On a constant currency basis, total revenue increased 7.0%.
  • Jimmy Choo operating income was $16 million and operating margin was 8.7%, compared to $19 million and 11.0% in the prior year.

Michael Kors First Quarter Fiscal 2024 Results

  • Michael Kors revenue of $787 million decreased 13.8% compared to the prior year. On a constant currency basis, total revenue decreased 13.4%.
  • Michael Kors operating income was $130 million and operating margin was 16.5%, compared to $222 million and 24.3% in the prior year.

Outlook

Given the planned acquisition of Capri Holdings Limited by Tapestry, Inc., the Company does not intend to provide financial guidance at this time and has withdrawn its previously issued guidance.

Use of Non-GAAP Financial Measures

Constant currency effects are non-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. Additionally, this earnings release includes certain non-GAAP financial measures that exclude certain costs associated with restructuring and other (income) expense, ERP implementation costs, Capri transformation costs, COVID-19 related expenses and long-lived asset impairments. The Company uses non-GAAP financial measures, among other things, to evaluate its operating performance and in order to represent the manner in which the Company conducts and views its business. The Company believes that excluding these items helps its management and investors compare operating performance based on its ongoing operations. While the Company considers the non-GAAP measures to be useful supplemental measures in analyzing its results, they are not intended to replace, nor act as a substitute for, any amounts presented in its consolidated financial statements prepared in conformity with U.S. GAAP and may be different from non-GAAP measures reported by other companies.

About Capri Holdings Limited

Capri Holdings is a global fashion luxury group consisting of iconic, founder-led brands Versace, Jimmy Choo and Michael Kors. Our commitment to glamorous style and craftsmanship is at the heart of each of our luxury brands. We have built our reputation on designing exceptional, innovative products that cover the full spectrum of fashion luxury categories. Our strength lies in the unique DNA and heritage of each of our brands, the diversity and passion of our people and our dedication to the clients and communities we serve. Capri Holdings Limited is publicly listed on the New York Stock Exchange under the ticker CPRI.

Additional Information and Where to Find It

This communication relates to the proposed transaction involving Capri. In connection with the proposed transaction, Capri will file relevant materials with the SEC, including Capri’s proxy statement on Schedule 14A (the “Proxy Statement”). This communication is not a substitute for the Proxy Statement or for any other document that Capri may file with the SEC and send to its shareholders in connection with the proposed transaction. The proposed transaction will be submitted to Capri’s shareholders for their consideration. Before making any voting decision, Capri’s shareholders are urged to read all relevant documents filed or to be filed with the SEC, including the Proxy Statement, as well as any amendments or supplements to those documents, when they become available because they will contain important information about the proposed transaction.

Capri’s shareholders will be able to obtain a free copy of the Proxy Statement, as well as other filings containing information about Capri, without charge, at the SEC’s website (www.sec.gov). Copies of the Proxy Statement and the filings with the SEC that will be incorporated by reference therein can also be obtained, without charge, by directing a request to Capri Holdings Limited, 90 Whitfield Street, 2nd Floor, London, United Kingdom W1T 4EZ, Attention: Investor Relations; telephone +1 (201) 514-8234, or from Capri’s website www.capriholdings.com.

Participants in the Solicitation

Capri and certain of its directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Capri’s directors and executive officers is available in Capri’s proxy statement for its 2023 annual meeting of shareholders, which was filed with the SEC on June 15, 2023. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Proxy Statement and other relevant materials to be filed with the SEC in connection with the proposed transaction when they become available. Free copies of the Proxy Statement and such other materials may be obtained as described in the preceding paragraph.

Forward-Looking Statements

This communication 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 about future events and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. All statements other than statements of historical facts included herein, may be forward-looking statements. Without limitation, any statements preceded or followed by or that include the words “plans”, “believes”, “expects”, “intends”, “will”, “should”, “could”, “would”, “may”, “anticipates”, “might” or similar words or phrases, are forward-looking statements. 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, including regarding the proposed transaction. These risks, uncertainties and other factors include changes in consumer traffic and retail trends; high consumer debt levels, recession and inflationary pressures; loss of market share and industry competition; the impact of the COVID-19 pandemic, levels of cash flow and future availability of credit, compliance with restrictive covenants under Capri’s credit agreement, Capri’s ability to integrate successfully and to achieve anticipated benefits of any acquisition and to successfully execute our growth strategies; the risk of disruptions to Capri’s businesses; risks associated with operating in international markets and our global sourcing activities, including disruptions or delays in manufacturing or shipments; the risk of cybersecurity threats and privacy of data security breaches; the negative effects of events on the market price of Capri’s ordinary shares and its operating results; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to Capri’s businesses; fluctuations in demand for Capri’s products; levels of indebtedness (including the indebtedness incurred in connection with acquisitions); 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 Capri’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; fluctuations in the capital markets; fluctuations in interest and exchange rates; the occurrence of unforeseen epidemics and pandemics, disasters or catastrophes; extreme weather conditions and natural disasters; political or economic instability in principal markets; adverse outcomes in litigation; and general, local and global economic, political, business and market conditions including acts of war and other geopolitical conflicts; the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed transaction that could delay or result in the termination of the proposed transaction, the occurrence of any other event, change or other circumstances that could give rise to the termination of the merger agreement entered into in connection with the proposed transaction, the possibility that Capri’s shareholders may not approve the proposed transaction, the risk that the parties to the merger agreement may not be able to satisfy the conditions to the proposed transaction in a timely manner or at all, risks related to disruption of management time from ongoing business operations due to the proposed transaction, the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of Capri’s ordinary shares, the risk of any unexpected costs or expenses resulting from the proposed transaction, the risk of any litigation relating to the proposed transaction, the risk that the proposed transaction and its announcement could have an adverse effect on the ability of Capri to retain customers and retain and hire key personnel and maintain relationships with customers, suppliers, employees, shareholders and other business relationships and on its operating results and business generally, and the risk the pending proposed transaction could divert the attention of Capri’s management; as well as those risks that are outlined in Capri’s disclosure filings and materials, which you can find on http://www.capriholdings.com, such as its Form 10-K, Form 10-Q and Form 8-K reports that have been filed with the SEC. Please consult these documents for a more complete understanding of these risks and uncertainties. Any forward-looking statement in this press release speaks only as of the date made and Capri disclaims any obligation to update or revise any forward-looking or other statements contained herein other than in accordance with legal and regulatory obligations.

 

SCHEDULE 1 

 

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

July 1,

2023

 

July 2,

2022

Total revenue

 

$

1,229

 

$

1,360

 

Cost of goods sold

 

 

417

 

 

459

 

Gross profit

 

 

812

 

 

901

 

Total operating expenses

 

 

732

 

 

670

 

Income from operations

 

 

80

 

 

231

 

Other expense, net

 

 

1

 

 

 

Interest expense (income), net

 

 

8

 

 

(4

)

Foreign currency loss

 

 

21

 

 

4

 

Income before income taxes

 

 

50

 

 

231

 

Provision for income taxes

 

 

2

 

 

28

 

Net income

 

 

48

 

 

203

 

Less: Net income attributable to noncontrolling interest

 

 

 

 

2

 

Net income attributable to Capri

 

$

48

 

$

201

 

Weighted average ordinary shares outstanding:

 

 

 

 

Basic

 

 

117,431,941

 

 

141,913,586

 

Diluted

 

 

118,282,633

 

 

143,733,984

 

Net income per ordinary share:

 

 

 

 

Basic

 

$

0.41

 

$

1.42

 

Diluted

 

$

0.41

 

$

1.40

 

 

SCHEDULE 2 

 

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

 

 

 

July 1,

2023

 

April 1,

2023

 

July 2,

2022

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

238

 

 

$

249

 

 

$

221

 

Receivables, net

 

 

300

 

 

 

369

 

 

 

394

 

Inventories, net

 

 

1,166

 

 

 

1,057

 

 

 

1,265

 

Prepaid expenses and other current assets

 

 

216

 

 

 

195

 

 

 

201

 

Total current assets

 

 

1,920

 

 

 

1,870

 

 

 

2,081

 

Property and equipment, net

 

 

551

 

 

 

552

 

 

 

466

 

Operating lease right-of-use assets

 

 

1,359

 

 

 

1,330

 

 

 

1,388

 

Intangible assets, net

 

 

1,737

 

 

 

1,728

 

 

 

1,739

 

Goodwill

 

 

1,308

 

 

 

1,293

 

 

 

1,336

 

Deferred tax assets

 

 

312

 

 

 

296

 

 

 

231

 

Other assets

 

 

222

 

 

 

226

 

 

 

369

 

Total assets

 

$

7,409

 

 

$

7,295

 

 

$

7,610

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

476

 

 

$

475

 

 

$

540

 

Accrued payroll and payroll related expenses

 

 

121

 

 

 

154

 

 

 

123

 

Accrued income taxes

 

 

82

 

 

 

73

 

 

 

136

 

Short-term operating lease liabilities

 

 

416

 

 

 

429

 

 

 

399

 

Short-term debt

 

 

13

 

 

 

5

 

 

 

37

 

Accrued expenses and other current liabilities

 

 

340

 

 

 

314

 

 

 

379

 

Total current liabilities

 

 

1,448

 

 

 

1,450

 

 

 

1,614

 

Long-term operating lease liabilities

 

 

1,354

 

 

 

1,348

 

 

 

1,465

 

Deferred tax liabilities

 

 

505

 

 

 

508

 

 

 

476

 

Long-term debt

 

 

1,924

 

 

 

1,822

 

 

 

1,382

 

Other long-term liabilities

 

 

366

 

 

 

318

 

 

 

295

 

Total liabilities

 

 

5,597

 

 

 

5,446

 

 

 

5,232

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Ordinary shares, no par value; 650,000,000 shares authorized; 225,684,542 shares issued and 116,064,396 outstanding at July 1, 2023; 224,166,250 shares issued and 117,347,045 outstanding at April 1, 2023 and 223,503,792 shares issued and 137,956,977 outstanding at July 2, 2022

 

 

 

 

 

 

 

 

 

Treasury shares, at cost (109,620,146 shares at July 1, 2023, 106,819,205 shares at April 1, 2023 and 85,546,815 shares at July 2, 2022)

 

 

(5,457

)

 

 

(5,351

)

 

 

(4,299

)

Additional paid-in capital

 

 

1,375

 

 

 

1,344

 

 

 

1,294

 

Accumulated other comprehensive income

 

 

137

 

 

 

147

 

 

 

89

 

Retained earnings

 

 

5,756

 

 

 

5,708

 

 

 

5,293

 

Total shareholders’ equity of Capri

 

 

1,811

 

 

 

1,848

 

 

 

2,377

 

Noncontrolling interest

 

 

1

 

 

 

1

 

 

 

1

 

Total shareholders’ equity

 

 

1,812

 

 

 

1,849

 

 

 

2,378

 

Total liabilities and shareholders’ equity

 

$

7,409

 

 

$

7,295

 

 

$

7,610

 

 

SCHEDULE 3 

 

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED SEGMENT DATA

($ in millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

July 1,

2023

 

July 2,

2022

Revenue by Segment and Region:

 

 

 

 

 

 

 

 

 

 

 

Versace

 

The Americas

 

$

82

 

 

$

115

 

 

 

EMEA

 

 

116

 

 

 

107

 

 

 

Asia

 

 

61

 

 

 

53

 

Versace Revenue

 

 

259

 

 

 

275

 

 

 

 

 

 

 

 

Jimmy Choo

 

The Americas

 

 

49

 

 

 

54

 

 

 

EMEA

 

 

81

 

 

 

66

 

 

 

Asia

 

 

53

 

 

 

52

 

Jimmy Choo Revenue

 

 

183

 

 

 

172

 

 

 

 

 

 

 

 

Michael Kors

 

The Americas

 

 

501

 

 

 

625

 

 

 

EMEA

 

 

175

 

 

 

191

 

 

 

Asia

 

 

111

 

 

 

97

 

Michael Kors Revenue

 

 

787

 

 

 

913

 

 

 

 

 

 

Total Revenue

 

$

1,229

 

 

$

1,360

 

 

 

 

 

 

Income from Operations:

 

 

 

 

Versace

 

 

 

$

3

 

 

$

52

 

Jimmy Choo

 

 

 

 

16

 

 

 

19

 

Michael Kors

 

 

 

 

130

 

 

 

222

 

Total segment income from operations

 

 

149

 

 

 

293

 

Less: Corporate expenses

 

 

(71

)

 

 

(60

)

Restructuring and other income (expense)

 

 

2

 

 

 

(3

)

COVID-19 related charges

 

 

 

 

1

 

Total Income from Operations

 

$

80

 

 

$

231

 

 

 

 

 

 

 

 

Operating Margin:

 

 

 

 

 

 

Versace

 

 

 

 

1.2

%

 

 

18.9

%

Jimmy Choo

 

 

 

 

8.7

%

 

 

11.0

%

Michael Kors

 

 

 

 

16.5

%

 

 

24.3

%

Capri

 

 

 

 

6.5

%

 

 

17.0

%

 

SCHEDULE 4 

 

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

SUPPLEMENTAL RETAIL STORE INFORMATION

(Unaudited)

 

 

 

 

 

As of

Retail Store Information:

 

July 1,

2023

 

July 2,

2022

Versace

 

224

 

208

Jimmy Choo

 

237

 

236

Michael Kors

 

810

 

821

Total number of retail stores

 

 

 

1,271

 

1,265

 

SCHEDULE 5 

 

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSTANT CURRENCY DATA

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

% Change

 

 

July 1,

2023

 

July 2,

2022

 

As

Reported

 

Constant

Currency

Total Revenue:

 

 

 

 

 

 

 

 

Versace

 

$

259

 

$

275

 

(5.8

)%

 

(5.8

)%

Jimmy Choo

 

 

183

 

 

172

 

6.4

%

 

7.0

%

Michael Kors

 

 

787

 

 

913

 

(13.8

)%

 

(13.4

)%

Total Revenue

 

$

1,229

 

$

1,360

 

(9.6

)%

 

(9.3

)%

 

SCHEDULE 6

 

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In millions, except per share data)

(Unaudited)

 

 

 

Three Months Ended July 1, 2023

 

 

As

Reported

 

Restructuring and Other (Income) Expense (1)

 

ERP Implementation (2)

 

Capri Transformation (3)

 

As

Adjusted

Gross profit

 

$

812

 

$

 

 

$

 

 

$

 

 

$

812

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

732

 

$

2

 

 

$

(5

)

 

$

(28

)

 

$

701

 

 

 

 

 

 

 

 

 

 

 

Total income from operations

 

$

80

 

$

(2

)

 

$

5

 

 

$

28

 

 

$

111

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss

 

$

21

 

$

(17

)

 

$

 

 

$

 

 

$

4

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

$

50

 

$

15

 

 

$

5

 

 

$

28

 

 

$

98

Provision for income taxes

 

$

2

 

$

3

 

 

$

1

 

 

$

4

 

 

$

10

Net income attributable to Capri

 

$

48

 

$

12

 

 

$

4

 

 

$

24

 

 

$

88

Diluted net income per ordinary share - Capri

 

$

0.41

 

$

0.10

 

 

$

0.03

 

 

$

0.20

 

 

$

0.74

______________________

(1)

 

Amounts impacting operating expenses primarily includes a gain on the sale of a long-lived corporate asset, partially offset by expenses related to equity awards associated with the acquisition of Gianni Versace S.r.l. and severance expenses. The foreign currency exchange loss represents a charge recognized in conjunction with restructuring activities to rationalize certain legal entities within our structure.

(2)

 

Represents a multi-year ERP implementation which includes accounting, finance and wholesale and retail inventory solutions in order to create standardized finance IT applications across our organization. This ERP implementation will continue through Fiscal 2026 and we expect expenditures up to $170 million.

(3)

 

The Capri transformation program represents a multi-year, multi-project initiative extending through Fiscal 2026 intended to improve the operating effectiveness and efficiency of our organization by creating best in class shared platforms across our brands and by expanding our digital capabilities. These initiatives cover multiple aspects of our operations including supply chain, marketing, omni-channel customer experience, e-commerce, data analytics and IT infrastructure. through Fiscal 2026, we expect expenditures up to $220 million related to these efforts.

SCHEDULE 7

 

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In millions, except per share data)

(Unaudited)

 

 

 

Three Months Ended July 2, 2022

 

 

As Reported

 

Restructuring and Other Expense (1)

 

COVID-19 Related Expenses

 

ERP Implementation

 

Capri Transformation

 

As Adjusted

Gross profit

 

$

901

 

$

 

 

$

(1

)

 

$

 

 

$

 

 

$

900

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

670

 

$

(3

)

 

$

 

 

$

(9

)

 

$

(9

)

 

$

649

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income from operations

 

$

231

 

$

3

 

 

$

(1

)

 

$

9

 

 

$

9

 

 

$

251

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

$

231

 

$

3

 

 

$

(1

)

 

$

9

 

 

$

9

 

 

$

251

Provision for income taxes

 

$

28

 

$

1

 

 

$

 

 

$

2

 

 

$

3

 

 

$

34

Net income attributable to Capri

 

$

201

 

$

2

 

 

$

(1

)

 

$

7

 

 

$

6

 

 

$

215

Diluted net income per ordinary share - Capri

 

$

1.40

 

$

0.01

 

 

$

 

 

$

0.05

 

 

$

0.04

 

 

$

1.50

______________________

(1)

 

Primarily Includes expenses related to equity award associated with the acquisition of Gianni Versace S.r.l.

 

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