CAPRI HOLDINGS LTD MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
The following Management's Discussion and Analysis ("MD&A") of our 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. 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 the Company 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. Forward-looking
statements include information concerning the Company's goals, future plans and
strategies, including with respect to ESG goals, initiatives and ambitions as
well as the Company's possible or assumed future results of operations,
including descriptions of its business strategy. 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.
These risks, uncertainties and other factors include the effect of the COVID-19
pandemic and its potential material and significant impact on the Company's
future financial and operational results if retail stores are forced to close
again and the pandemic is prolonged, including that our estimates could
materially differ if the severity of the COVID-19 situation worsens, or if there
are further supply chain disruptions, including additional production delays and
increased costs, the length and severity of such outbreak across the globe and
the pace of recovery following the COVID-19 pandemic, levels of cash flow and
future availability of credit, compliance with restrictive covenants under the
Company's credit agreement, the Company'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 the Company's businesses;
risks associated with operating in international markets and our global sourcing
activities; the risk of cybersecurity threats and privacy or data security
breaches; 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); 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 such 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; higher consumer debt levels, recession and inflationary pressures, loss
of market share and industry competition; 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, as well as those risks set forth in the Company's
filings with the U.S. Securities and Exchange Commission , including in this
Annual Report on Form 10-K, particularly under "Item 1A. Risk Factors".
Insight
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. Our 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 in 1978 inMilan , Versace is known for its iconic and unmistakable style and unparalleled craftsmanship. Over the past several decades, theHouse of Versace has grown globally from its roots in haute couture, expanding into the design, manufacturing, distribution and retailing of accessories, ready-to-wear, footwear, eyewear, watches, jewelry, fragrance and home furnishings businesses. Versace's design team is led byDonatella 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 sites, as well as through the most prestigious department and specialty stores worldwide. 40
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Our Jimmy Choo brand 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, jewelry, scarves and belts, as well as a growing men's luxury shoe and accessory business. In addition, certain categories, such as fragrances and eyewear are produced under licensing agreements. Jimmy Choo's design team is led bySandra 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. Our Michael Kors brand was launched 40 years ago by Michael Kors, a world-renowned designer, whose vision has taken the Company from its beginnings as an American luxury sportswear house to a global accessories, footwear and ready-to-wear 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 theAmericas andEurope 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 select 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 ready-to-wear, 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.
Certain Factors Affecting Financial Condition and Results of Operations
COVID-19 Pandemic. The ongoing COVID-19 pandemic has caused significant disruption to the global economy, consumer spending and behavior, tourism and to financial markets. While the overall COVID-19 situation appears to be improving, our business and operating results may be negatively impacted if the virus worsens or mutates, if vaccination efforts are unsuccessful and/or if regions or countries take further actions to contain the virus (including additional extended lock-downs and travel restrictions), among others. We continue to monitor the latest developments regarding the pandemic and have made certain assumptions about the pandemic for purposes of our business and operating results, including assumptions regarding the duration, severity and global macroeconomic impacts of the pandemic; however, the full extent of the impact of COVID-19 on our business and operating results will depend largely on future events outside of our control, including the duration and severity of the pandemic and the success of vaccination efforts, new information concerning the virus or variants of the virus, actions different states, regions or countries may take to contain the virus (including extended lock-downs and travel restrictions) and the economic impacts of the pandemic, including recent inflationary pressures, among others. See Item 1A. "Risk Factors" - "The COVID-19 pandemic may continue to have a material adverse effect on our business and results of operations." for additional discussion regarding risks to our business associated with the COVID-19 pandemic. Channel shift, macroeconomic factors and demand for our accessories and related merchandise. Our performance is affected by trends in the luxury goods industry, global consumer spending, macroeconomic factors, overall levels of consumer travel and spending on discretionary items as well as shifts in demographics and changes in lifestyle preferences. Through 2019, the personal luxury goods market grew at a mid-single digit rate over the past 20 years, with more recent 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. However, in 2020, due to the impact of the COVID-19 crisis, the personal luxury goods market declined 23%. Market studies indicate that the personal luxury goods market returned to 2019 levels in 2021, and the market is predicted to increase at a 10% compound annual growth rate between 2020 and 2025. Future growth is expected to be driven by e-commerce, Chinese consumers and younger generations. As the personal luxury goods market continues to evolve, Capri is committed to creating engaging luxury experiences globally. In our view, increased customer engagement and tailoring merchandise to customer shopping and communication preferences are key to growing market share. We also continue to adjust our retail operating strategy to the changing business environment. We have finalized the planned store closures under the Capri Retail Store Optimization Program as of the end of Fiscal 2022. As ofApril 2, 2022 , we closed a total of 167 stores and recorded total net restructuring charges of$14 million relating to the plan. We recorded net restructuring charges of$9 million and$5 million during Fiscal 2022 and Fiscal 2021, respectively, relating to the plan. See Item 9B - Other Information for additional information. Collectively, we continue to anticipate ongoing savings as a result of the store closures and lower depreciation associated with the impairment charges being recorded. 41
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Foreign currency fluctuation. Our consolidated operations are impacted by the relationships between our reporting currency,the United States dollar, and those of our non-United States subsidiaries whose functional/local currency is other thanthe United States dollar, primarily 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-United States subsidiaries in the future, when translated tothe United States dollar. Disruptions or delays in shipping and distribution and other supply chain constraints. We have been experiencing global logistics challenges, including delays as a result of port congestion, vessel availability, container shortages and temporary factory closures which are expected to continue for Fiscal 2023. Our freight costs have increased as carrier rates for ocean and air shipments have increased significantly, and the supply chain disruptions have caused us to increase our use of air freight with greater frequency than in the past. Any future disruptions in our shipping and distribution network, including impacts on our supply chain due to temporary closures of our manufacturing partners and shipping and fulfillment constraints, could have a negative impact on our results of operations. See Item 1A. "Risk Factors" - "We primarily use foreign manufacturing contractors and independent third-party agents to source our finished goods and our business is subject to risks inherent in global sourcing activities, including disruptions or delays in manufacturing or shipments." for additional discussion. Costs of manufacturing, tariffs and import regulations. 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 sanction tariffs imposed on our products due to changes in trade terms. For example, we have historically received benefits from duty-free imports on certain products from certain countries pursuant to the GSP program. The GSP program expired onDecember 31, 2020 . If the GSP program is not renewed or otherwise made retroactive, we will continue to experience significant additional duties and our gross margin will continue to be negatively impacted. Additionally, we are subject to government import regulations, including CBP withhold release orders. The imposition of taxes, duties and quotas, the withdrawal from or material modification to trade agreements and/or if CBP detains shipments of our goods pursuant to a withhold release order could have a material adverse effect on our business, results of operations and financial condition. If additional tariffs or trade restrictions are implemented bythe United States or other countries, the cost of our products could increase which could adversely affect our business. In addition, commodity prices and tariffs may have an impact on our revenues, results of operations and cash flows. We use commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible and diversifying the countries where we produce. 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 product.
Segment information
We operate in three segments to present, which are as follows:
Versace
We generate revenue through the sale of Versace luxury accessories, ready-to-wear and footwear through directly operated Versace boutiques throughoutNorth America (United States andCanada ), certain parts of EMEA (Europe ,Middle East andAfrica ) and certain parts ofAsia (Asia andOceania ), 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 products, including jeans, fragrances, watches, jewelry, eyewear and home furnishings.
jimmy choo
We generate revenue through the sale of Jimmy Choo luxury goods through directly operated Jimmy Choo retail and outlet stores throughout theAmericas (United States ,Canada andLatin America ), certain parts of EMEA and certain parts ofAsia , 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 products, including fragrances and eyewear. 42
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Michael Kors
We generate revenue 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 we sell our products, as well as licensed products bearing our name, directly to consumers throughout theAmericas , certain parts of EMEA and certain parts ofAsia . Our Michael Kors e-commerce business includes e-commerce sites inthe United States ,Canada and EMEA andAsia . We also sell Michael Kors products directly to department stores, primarily located across theAmericas and EMEA, to specialty stores and travel retail shops in theAmericas ,Europe andAsia , and to our geographic licensees in certain parts of EMEA,Asia andBrazil . 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, 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.
Unrestricted business 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, shared service and information systems expenses, including ERP system implementation costs and Capri transformation program costs. In addition, certain other costs are not allocated to segments, including restructuring and other charges, impairment costs, COVID-19 related charges, charitable donations and the war inUkraine . The segment structure is consistent with how our chief operating decision maker plans and allocates resources, manages the business and assesses performance. The following table presents our total revenue and income (loss) from operations by segment for Fiscal 2022, Fiscal 2021 and Fiscal 2020 (in millions): Fiscal Years Ended April 2, March 27, March 28, 2022 2021 2020 Total revenue: Versace$ 1,088 $ 718 $ 843 Jimmy Choo 613 418 555 Michael Kors 3,953 2,924 4,153 Total revenue $
5,654
Operating income (loss):
Versace$ 185 $ 21 $ (8) Jimmy Choo 13 (55) (13) Michael Kors 1,005 595 850 Total segment income from operations 1,203 561 829 Less: Corporate expenses (190) (152) (152) Impairment of assets (1) (73) (316) (708) COVID-19 related charges (2) 14 (42) (119) Impact of war in Ukraine (3) (9) - - Restructuring and other charges (42) (32) (42) Total income (loss) from operations$ 903 $ 19 $ (192) (1)Impairment of assets during Fiscal 2022 includes$50 million ,$19 million and$4 million of impairment charges related to the Michael Kors, Versace and Jimmy Choo reportable segments, respectively. Impairment of assets during Fiscal 2021 includes$191 million ,$91 million and$34 million of impairment charges related to the Jimmy Choo, Michael Kors and Versace reportable segments, respectively. Impairment of assets during Fiscal 2020 includes$434 million ,$187 million and$87 million of impairment charges related to the Jimmy Choo, Michael Kors and Versace reportable segments, respectively. (2)COVID-19 related charges during Fiscal 2022 primarily include net inventory credits of$16 million as a result of better than expected sell-through and severance expense of$2 million , respectively. Net inventory credits during 43 -------------------------------------------------------------------------------- Table of Contents Fiscal 2022 is change of estimate from better than expected sell-through. COVID-19 related charges during Fiscal 2021, primarily include net inventory credits and severance expense of$10 million and$24 million , respectively. COVID-19 related charges during Fiscal 2020, primarily include additional inventory reserves and credit losses of$92 million and$25 million , respectively. Inventory related costs are recorded within costs of goods sold and severance expense and credit losses are recorded within selling, general and administrative expenses in the consolidated statements of operations and comprehensive income (loss). (3)These charges primarily relate to incremental credit losses and inventory reserves which are a direct impact of the war inUkraine . Credit losses are recorded within selling, general and administrative expenses and inventory related costs are recorded within costs of goods sold in the consolidated statements of operations and comprehensive income (loss). The following table presents our global network of retail stores and wholesale doors: As of April 2, March 27, March 28, 2022 2021 2020 Number of full price retail stores (including concessions): Versace 149 153 157 Jimmy Choo 181 176 179 Michael Kors 524 529 568 854 858 904 Number of outlet stores: Versace 60 57 49 Jimmy Choo 56 51 47 Michael Kors 301 291 271 417 399 367 Total number of retail stores 1,271 1,257 1,271 Total number of wholesale doors: Versace 803 868 824 Jimmy Choo 446 450 554 Michael Kors 2,742 2,852 2,982 3,991 4,170 4,360
The following table shows our retail stores by geographic location:
As of As of
April 2, 2022 March 27, 2021
Versace Jimmy Choo Michael Kors Versace Jimmy Choo Michael Kors
Store count by region:
The Americas 39 45 334 34 44 353
EMEA 55 73 176 57 74 176
Asia 115 119 315 119 109 291
209 237 825 210 227 820
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Key performance indicators and statistics
We use a number of key operating performance indicators to assess our performance, including the following (in millions of dollars):
Closed fiscal years
April 2, March 27, March 28,
2022 2021 2020
Total revenue $ 5,654 $ 4,060 $ 5,551
Gross profit as a percent of total revenue 66.2 % 64.0 % 58.9 %
Income (loss) from operations $ 903 $
19
Operating income (loss) as a percentage of total income
16.0 % 0.5 % (3.5) %
Significant Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe 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. While our significant accounting policies are detailed in Note 2 to the accompanying financial statements, our critical accounting policies are discussed below and include revenue recognition, inventories, long-lived assets, goodwill and other indefinite-lived intangible assets, share-based compensation, derivatives and income taxes.
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$22 million ,$20 million and$12 million atApril 2, 2022 ,March 27, 2021 andMarch 28, 2020 , 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$70 million ,$78 million and$154 million atApril 2, 2022 ,March 27, 2021 andMarch 28, 2020 , 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.
Inventories
Our inventory costs include amounts paid to independent manufacturers, plus duties and freight to bring the goods to the Company's warehouses, as well as shipments to stores. The combined total of raw materials and work in process inventory recorded on our consolidated balance sheets as ofApril 2, 2022 andMarch 27, 2021 were$31 million and$28 million , respectively. We continuously evaluate the composition of our inventory and make adjustments when the cost of inventory is 45
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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.
Long-lived assets
We evaluate all long-lived assets, including operating lease right-of-use assets, property and equipment 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 long-lived assets at the lowest level of identifiable cash flow. Our leasehold improvements are typically amortized over the life of the store lease, including reasonably assured renewals and our shop-in-shops are amortized over a useful life of three to five 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 would recognize an impairment charge, which is measured as the amount by which the carrying value exceeds the fair value of the asset. The fair values determined by management require significant judgment and include certain assumptions regarding future sales and expense growth rates, discount rates and estimates of real estate market fair values. As such, these estimates may differ from actual results and are affected by future market and economic conditions. During Fiscal 2022, Fiscal 2021 and Fiscal 2020, we recorded impairment charges of$83 million ,$158 million and$357 million , respectively, which were primarily related to operating lease right-of-use assets and fixed assets of our retail store locations. Please refer to Note 7 and Note 13 of the accompanying consolidated financial statements for additional information.
We record intangible assets based on their fair value on the date of acquisition.Goodwill is recorded as the difference between the fair value of the purchase consideration and 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 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 is 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. We use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, we engage independent third-party valuation specialists for assistance. To determine the fair value of a reporting unit, we use a combination of the income and market approaches, when applicable. We believe the blended use of both models, when applicable, compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation. 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. These valuations are affected by certain estimates, including future revenue growth rates, future operating expense growth rates, gross margins and discount rates. Future events could cause us to conclude that impairment indicators exist and goodwill may be impaired. 46
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When performing a quantitative impairment assessment of our brand 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 revenue growth rates, royalty rates and discount rates. Actual future results may differ from these estimates. An impairment loss is recognized when the estimated fair value of the brand intangible assets is less than its carrying amount. During the fourth quarter of Fiscal 2022, we performed our annual goodwill and indefinite-lived intangible assets impairment analysis. Based on qualitative impairment assessment of the Michael Kors reporting units, we concluded that it is more likely than not that the fair value of the Michael Kors reporting units exceeded its carrying value and, therefore, was not impaired. We elected to perform quantitative impairment analyses for the Versace and Jimmy Choo reporting units, using a combination of income and market approaches to estimate the fair values of reporting units. We also elected to perform an impairment analysis for the Versace and Jimmy Choo brand intangible assets using an income approach to estimate the fair values. Based on the results of these assessment, we concluded that the fair values of the Versace and Jimmy Choo reporting units and the brand intangible assets exceeded the related carrying amounts and no impairment was required. In Fiscal 2021, we recorded a goodwill impairment charge of$94 million related to the Jimmy Choo wholesale and Jimmy Choo licensing reporting units and$69 million impairment charge related to the Jimmy Choo brand intangible assets during Fiscal 2021. We recorded a goodwill impairment charge of$171 million related to the Jimmy Choo retail and Jimmy Choo licensing reporting units and$180 million impairment charge related to the Jimmy Choo brand intangible assets during Fiscal 2020. The impairment charges were recorded within impairment of assets on our consolidated statement of operations and comprehensive income (loss) for the fiscal years endedMarch 27, 2021 andMarch 28, 2020 . See Note 8 to the accompanying financial statements for information relating to the annual impairment analysis performed during the fourth quarters of Fiscal 2022, Fiscal 2021 and Fiscal 2020. It is possible that our conclusions regarding impairment or recoverability of goodwill or other indefinite intangible assets could change in future periods if, for example, (i) our businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions, (iii) business conditions or strategies change from our current assumptions, (iv) discount rates change, (v) market multiples change or (vi) the identification of our reporting units change, among other factors. Such changes could result in a future impairment charge of goodwill or other indefinite intangible assets.
Stock-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 stock 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.
We use our own historical experience in determining the expected holding period
and volatility of our time-based share option awards. 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 exchange contracts
We use forward foreign currency exchange contracts to manage our exposure to
fluctuations in foreign currency for certain transactions. We, in our normal
course of business, enter into transactions with foreign suppliers and seeks to
minimize risks related to these transactions. We employ these contracts to hedge
the our 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 our derivative instruments are recorded in our
consolidated balance sheets at fair value on a gross basis, regardless of their
hedge designation.
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We designate 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 a 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 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 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 our consolidated statements of operations and comprehensive income (loss). We classify cash flows relating to our forward foreign currency exchange contracts related to purchases of inventory consistently with the classification of the hedged item within cash flows from operating activities. 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. 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 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 betweenthe United States dollar and the associated foreign currencies. We have elected the spot method of designating these contracts under ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", and have designated these contracts as net investment hedges. The net gain or loss on the net investment hedge is reported within foreign currency translation gains and losses ("CTA"), as a component of accumulated other comprehensive income on our consolidated balance sheets. Interest accruals and coupon payments are recognized directly in interest (income) expense, net, in our consolidated statements of operations and comprehensive income (loss). Upon discontinuation of a hedge, all previously recognized amounts remain in CTA until the 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. During the fourth quarter of Fiscal 2020, we terminated all of our net investment hedges related to our Euro-denominated subsidiaries. The early termination of these hedges resulted in the receipt of$296 million in cash during the fourth quarter of Fiscal 2020. During Fiscal 2021, the Company resumed its normal hedging program and entered into multiple fixed-to-fixed cross-currency swap agreements to hedge its net investment in Euro-denominated and Japanese Yen-denominated subsidiaries against future volatility in the exchange rate betweenthe United States dollar and these currencies. During Fiscal 2021, the Company entered into multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of$4 billion to hedge its net investment in Euro-denominated subsidiaries and$194 million to hedge its net investment in Japanese Yen-denominated subsidiaries against future volatility in the exchange rates betweenthe United States dollar and these currencies. During the first quarter of Fiscal 2022, we modified multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of$2.875 billion to hedge its net investment in Euro denominated subsidiaries. Due to an other-than-insignificant financing element for certain of the first quarter modifications, net interest cash inflows of$31 million during Fiscal 2022 related to these contracts are classified as financing activities in our consolidated statements of cash flows. During the third and fourth quarter of Fiscal 2022, we modified multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of$1.5 billion and$2.475 billion , respectively. The modification of these hedges resulted in the receipt of$59 million and$130 million in cash during the third and fourth quarter of Fiscal 2022, respectively. These amounts are classified within investing activities in our consolidated statements of cash flows.
Interest rate swap contracts
We also use interest rate swap agreements to hedge the variability of our cash
flows resulting from floating interest rates on our borrowings. When an interest
rate swap agreement qualifies for hedge accounting as a cash flow hedge, the
changes in
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fair value is recognized in equity as a component of accumulated other comprehensive income and is reclassified to interest expense (income), net, in the same period that the hedged transactions affect the results.
During the third quarter of Fiscal 2022, we terminated our only interest rate swap. As a result, we recognized a$1 million gain within interest (income) expense, net, within our consolidated statements of operations and comprehensive income (loss). 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 to those positions. We record interest and penalties payable to relevant tax authorities as income tax expense. In response to the COVID-19 pandemic, local governments enacted, or are in the process of enacting, measures to provide aid and economic stimulus to companies. OnMarch 27, 2020 ,the United States government enacted the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which includes various tax provisions aimed at providing economic relief. We realized a slight favorable cash flow impact in Fiscal 2021 as a result of the deferral of income tax payments under the CARES Act and other local government relief initiatives. We also considered the significant adverse impact of COVID-19 on our business in assessing the realizability of our deferred tax assets. Based on this assessment, we determined that valuation allowances of approximately$65 million were needed against a portion of our non-United States deferred tax assets in Fiscal 2020 which increased to$95 million in Fiscal 2021 and during Fiscal 2022 decreased to$36 million . We will continue to monitor the impacts of COVID-19 on our ability to realize our deferred tax assets and on the tax provision. Another provision of the CARES Act applicable to us is the modification to allow for a five-year carryback of net operating losses. We recognized a$13 million benefit from a net operating loss ("NOL") carryback claim in Fiscal 2021, which represented our provisional estimate at that time. During Fiscal 2022, we finalized our accounting for the carryback and recognized an additional$43 million income tax benefit.
New accounting statements
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.
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Results of Operations
A discussion regarding our results of operations for Fiscal 2022 compared to
Fiscal 2021 is presented below. A discussion regarding our results of operations
for Fiscal 2021 compared to Fiscal 2020 can be found under Item 7 in our Annual
Report on Form 10-K for the year ended March 27, 2021 , filed with the SEC on May
26, 2021 , which is available on the SEC's website at www.sec.gov and our
investor website at www.capriholdings.com.
Comparison of fiscal year 2022 with fiscal year 2021
The following table details the results of our operations for fiscal 2022 and fiscal 2021 and expresses the relationship between certain line items and total revenue as a percentage (in millions of dollars):
Fiscal Years Ended % of Total % of Total
April 2, March 27, Revenue for Revenue for
2022 2021 $ Change % Change Fiscal 2022 Fiscal 2021
Statements of Operations Data:
Total revenue $ 5,654 $ 4,060 $ 1,594 39.3 %
Cost of goods sold 1,910 1,463 447 30.6 % 33.8 % 36.0 %
Gross profit 3,744 2,597 1,147 44.2 % 66.2 % 64.0 %
Selling, general and administrative
expenses 2,533 2,018 515 25.5 % 44.8 % 49.7 %
Depreciation and amortization 193 212 (19) (9.0) % 3.4 % 5.2 %
Impairment of assets 73 316 (243) (76.9) % 1.3 % 7.8 %
Restructuring and other charges 42 32 10 31.3 % 0.7 % 0.8 %
Total operating expenses 2,841 2,578 263 10.2 % 50.2 % 63.5 %
Income from operations 903 19 884 NM 16.0 % 0.5 %
Other income, net (2) (7) 5 71.4 % - % (0.2) %
Interest (income) expense, net (18) 43 (61) NM (0.3) % 1.1 %
Foreign currency loss (gain) 8 (20) 28 NM 0.1 % (0.5) %
Income before provision for income taxes 915 3 912 NM 16.2 % 0.1 %
Provision for income taxes 92 66 26 39.4 % 1.6 % 1.6 %
Net income (loss) 823 (63) 886 NM
Less: Net income (loss) attributable to
noncontrolling interests 1 (1) 2 NM
Net income (loss) attributable to Capri $ 822 $ (62) $ 884 NM
NM Not meaningful
Total Revenue
Total revenue increased $1.594 billion , or 39.3%, to $5.654 billion for Fiscal
2022, compared to $4.060 billion for Fiscal 2021, which included net favorable
foreign currency effects of $25 million primarily related to the strengthening
of the British Pound against the United States dollar in Fiscal 2022, as
compared to Fiscal 2021. On a constant currency basis, our total revenue
increased $1.569 billion , or 38.6%. The increase is attributable to the
continued recovery from the COVID-19 pandemic. In the prior fiscal year, the
Company experienced widespread, temporary store closures and a significant
decline in store traffic. Fiscal 2022 also included approximately $70 million of
incremental revenue attributable to the inclusion of the 53rd week.
Gross profit
Gross profit increased$1.147 billion , or 44.2%, to$3.744 billion during Fiscal 2022, compared to$2.597 billion for Fiscal 2021, which included net favorable foreign currency effects of$5 million . Gross profit as a percentage of total revenue increased 220 basis points to 66.2% during Fiscal 2022, compared to 64.0% during Fiscal 2021. The increase in gross profit margin was primarily attributable to a higher average unit price and lower promotional activity, partially offset by increases in supply chain costs and unfavorable channel mix. 50
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Total operating expenses
Total operating expenses increased$263 million , or 10.2%, to$2.841 billion during Fiscal 2022, compared to$2.578 billion for Fiscal 2021. Our operating expenses included a net unfavorable foreign currency impact of approximately$2 million . Total operating expenses as a percentage of total revenue decreased to 50.2% in Fiscal 2022, compared to 63.5% in Fiscal 2021. The components that comprise total operating expenses are detailed below.
Selling, general and administrative expenses
Selling, general and administrative expenses increased
Selling, general and administrative expenses as a percentage of total revenue decreased to 44.8% in fiscal 2022 from 49.7% in fiscal 2021, primarily due to the leverage effect of operating expenses due to increased revenues.
Unallocated corporate expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment, increased$38 million , or 25.0%, to$190 million for Fiscal 2022, compared to$152 million for Fiscal 2021, primarily due to an increase in professional fees related to the ERP system implementation and Capri transformation projects and an increase in compensation expense.
Depreciation and amortization
Depreciation and amortization decreased$19 million , or 9.0%, to$193 million during Fiscal 2022, compared to$212 million for Fiscal 2021. The decrease in depreciation and amortization expense was primarily attributable to lower depreciation due to lower capital expenditures in Fiscal 2022 and Fiscal 2021. Depreciation and amortization decreased to 3.4% as a percentage of total revenue during Fiscal 2022, compared to 5.2% for Fiscal 2021 primarily due to higher revenues during Fiscal 2022. Impairment of Assets
In fiscal 2022, we recorded asset impairment charges of
Restructuring and other charges
During Fiscal 2022, we recognized restructuring and other charges of$42 million , which included other costs of$33 million , primarily related to equity awards associated with the acquisition of Versace and severance for an executive officer and$9 million related to our Capri Retail Store Optimization Program (see Note 10 to the accompanying consolidated financial statements for additional information). During Fiscal 2021, we recognized restructuring and other charges of$32 million , which included other costs of$27 million , primarily related to equity awards associated with the acquisition of Versace and the closure of certain corporate locations and$5 million related to ourCapri Retail Store Optimization Program.
Income from operations
As a result of the foregoing, income from operations increased$884 million to$903 million during Fiscal 2022, compared to$19 million for Fiscal 2021. Income from operations as a percentage of total revenue increased to 16.0% in Fiscal 2022, compared to 0.5% in Fiscal 2021. See Segment Information above for a reconciliation of our segment operating income to total operating income. 51
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Interest (income) Expenses, net
During Fiscal 2022, we recognized$18 million of interest income compared to$43 million of interest expense during Fiscal 2021. The$61 million improvement in interest (income) expense, net, is primarily due to an increase of interest income from higher average notional amounts outstanding on our net investment hedges in the current year and a decrease in interest expense attributable to lower average borrowings outstanding (see Note 11 and Note 14 to the accompanying consolidated financial statements for additional information).
Exchange loss (gain)
During Fiscal 2022 and Fiscal 2021, we recognized a net foreign currency loss of$8 million and a net foreign currency gain of$20 million , respectively, primarily attributable to the remeasurement of intercompany loans with certain of our subsidiaries. Provision for Income Taxes During Fiscal 2022, we recognized$92 million of income tax expense on pre-tax income of$915 million compared with$66 million of income tax expense on a pre-tax income of$3 million for Fiscal 2021. Our effective tax rate for Fiscal 2022 was significantly lower than our effective tax rate in Fiscal 2021, and not a meaningful or comparable metric, primarily due to the relationship between our income tax expense and minimal pre-tax income in the prior year as compared to the current year. The Fiscal 2022 income tax expense was higher than Fiscal 2021 primarily due to the increase in pre-tax income and increases in uncertain tax positions during Fiscal 2022. The increase was partially offset by a release of a valuation allowance in certain European subsidiaries, the impact of recently enacted tax legislation inItaly which allowed the Company to reduce its deferred tax liabilities, as well as a more favorable effect of our global financing activities during Fiscal 2022 compared to Fiscal 2021. As a result, the effect that discrete tax amounts have on the effective income tax rate during the year is not comparable. See Note 17 to the accompanying consolidated financial statements for additional information. The global financing activities are related to our previously disclosed 2014 move of our principal executive office fromHong Kong to theU.K. and decision to become aU.K. tax resident. In connection with this decision, we funded our international growth strategy through intercompany debt financing arrangements between certain of ourUnited States ,United Kingdom and Hungarian subsidiaries. Accordingly, due to the difference in the statutory income tax rates between these jurisdictions, we realized a lower effective tax rate on consolidated pre-tax income. Our effective tax rate may fluctuate from time to time due to the effects of changes inUnited States 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 (loss) attributable to non-controlling interest
In fiscal 2022, we recorded net income attributable to non-controlling interests of
Net income (loss) attributable to Capri
As a result of the above, in fiscal 2022 our net income attributable to Capri increased
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Segment Information
Versace
Fiscal Years Ended % Change
April 2, March 27, Constant
2022 2021 $ Change As Reported Currency
Revenues $ 1,088 $ 718 $ 370 51.5 % 52.8 %
Income from operations 185 21 164 NM
Operating margin 17.0 % 2.9 %
NM Not meaningful
Revenues
Versace revenues increased $370 million , or 51.5%, to $1.088 billion for Fiscal
2022, compared to $718 million for Fiscal 2021, which included unfavorable
foreign currency effects of $9 million . On a constant currency basis, revenue
increased $379 million , or 52.8%, primarily attributable to the continued
recovery from the COVID-19 pandemic. In the prior fiscal year, the Company
experienced widespread, temporary store closures and a significant decline in
store traffic.
Income from Operations
During Fiscal 2022, Versace recorded income from operations of $185 million
compared to $21 million for Fiscal 2021. Operating margin increased from 2.9%
for Fiscal 2021 to 17.0% for Fiscal 2022, primarily due to a higher average unit
price and leveraging of operating expenses due to higher revenue.
Jimmy Choo
Fiscal Years Ended % Change
April 2, March 27, Constant
2022 2021 $ Change As Reported Currency
Revenues $ 613 $ 418 $ 195 46.7 % 40.4 %
Income (loss) from operations 13 (55) 68 NM
Operating margin 2.1 % (13.2) %
NM Not meaningful
Revenues
Jimmy Choo revenues increased $195 million , or 46.7%, to $613 million for Fiscal
2022, compared to $418 million for Fiscal 2021, which included favorable foreign
currency effects of $26 million . On a constant currency basis, revenue increased
$169 million , or 40.4%, primarily attributable to the continued recovery from
the COVID-19 pandemic. In the prior fiscal year, the Company experienced
widespread, temporary store closures and a significant decline in store traffic.
Fiscal 2022 also included incremental revenue attributable to the inclusion of
the 53rd week.
Operating income (loss)
During Fiscal 2022, Jimmy Choo recorded income from operations of$13 million compared to a loss from operations of$55 million for Fiscal 2021. Operating margin improved from (13.2)% for Fiscal 2021 to 2.1% for Fiscal 2022, primarily due to a higher average unit price and leveraging of operating expenses due to higher revenue. 53
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Michael Kors
Fiscal Years Ended % Change
April 2, March 27, Constant
2022 2021 $ Change As Reported Currency
Revenues $ 3,953 $ 2,924 $ 1,029 35.2 % 34.9 %
Income from operations 1,005 595 410 68.9 %
Operating margin 25.4 % 20.3 %
Revenues
Michael Kors revenues increased $1.029 billion , or 35.2%, to $3.953 billion for
Fiscal 2022, compared to $2.924 billion for Fiscal 2021, which included
favorable foreign currency effects of $8 million . On a constant currency basis,
revenue increased $1.021 billion , or 34.9%, primarily attributable to the
continued recovery from the COVID-19 pandemic. In the prior fiscal year, the
Company experienced widespread, temporary store closures and a significant
decline in store traffic. Fiscal 2022 also included incremental revenue
attributable to the inclusion of the 53rd week.
Income from operations
During Fiscal 2022, Michael Kors recorded income from operations of$1.005 billion compared to$595 million for Fiscal 2021. Operating margin increased from 20.3% for Fiscal 2021 to 25.4% for Fiscal 2022, primarily due to a higher average unit price and leveraging of operating expenses due to higher revenue, partially offset by increases in supply chain costs. 54 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources 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 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 and beyond, including investments made and expenses incurred in connection with our store growth plans, investments in corporate and distribution facilities, continued systems development, e-commerce and marketing initiatives. We spent$131 million on capital expenditures during Fiscal 2022 and expect to spend approximately$300 million during Fiscal 2023. This anticipated increase reflects continued expenditures related to our retail operations (including e-commerce), ERP system implementation and Capri transformation programs. The majority of the Fiscal 2022 expenditures related to our retail operations (including e-commerce) and our corporate offices. The following table sets forth key indicators of our liquidity and capital resources (in millions): As of April 2, March 27, 2022 2021 Balance Sheet Data: Cash and cash equivalents$ 169 $ 232 Working capital$ 325 $ (75) Total assets$ 7,480 $ 7,481 Short-term debt$ 29 $ 123 Long-term debt$ 1,131 $ 1,219 Fiscal Years Ended April 2, March 27, March 28, 2022 2021 2020 Cash flows provided by (used in): Operating activities $ 704$ 624 $ 859 Investing activities 58 (124) 62 Financing activities (800) (870) (497) Effect of exchange rate changes (24) 12 (4) Net (decrease) increase in cash, cash equivalents and restricted cash $ (62)$ (358) $ 420
Cash flow from operating activities
Cash provided by operating activities increased$80 million to$704 million during Fiscal 2022, as compared to$624 million for Fiscal 2021, which was due to an increase in our net income after non-cash adjustments, partially offset by decreases related to changes in our working capital. The decreases related to the changes in our working capital are primarily attributable to an increase in our inventory levels and fluctuations in the timing of payments and receipts when compared to the prior year. Cash provided by operating activities decreased$235 million to$624 million during Fiscal 2021, as compared to$859 million for Fiscal 2020, which was due to a decrease in our net income after non-cash adjustments, primarily driven by a decrease in impairments and a decrease in net loss, partially offset by increases related to changes in our working capital, primarily attributable to fluctuations in the timing of payments and receipts due to the impact of COVID-19.
Cash provided by (used in) investing activities
Net cash provided by investing activities was$58 million during Fiscal 2022, as compared to net cash used in investing activities of$124 million during Fiscal 2021. The$182 million increase in cash provided by investing activities was primarily attributable to$189 million cash received on the settlement of certain net investment hedges during Fiscal 2022. 55
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Net cash used in investing activities was$124 million during Fiscal 2021, as compared to net cash provided by investing activities of$62 million during Fiscal 2020. The$186 million increase in cash used in investing activities was primarily attributable to a$298 million settlement of net investment hedges during Fiscal 2020, partially offset by a$112 million decrease in capital expenditures compared to Fiscal 2020.
Cash used in financing activities
Net cash used in financing activities was$800 million during Fiscal 2022, as compared to$870 million during Fiscal 2021. The decrease in cash used by financing activities of$70 million was primarily due to a decrease in net debt repayments of$681 million , higher cash proceeds from other financing activities and employee option exercises, partially offset by an increase of$660 million in cash payments to repurchase our ordinary shares during Fiscal 2022. Net cash used in financing activities was$870 million during Fiscal 2021, as compared to$497 million during Fiscal 2020. The increase in cash used by financing activities of$373 million was primarily due to an increase in net debt repayments of$474 million , partially offset by a decrease of$101 million in cash payments to repurchase our ordinary shares during Fiscal 2021. 56
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Borrowing facilities
The following table presents a summary of the Company's borrowing capacity and amounts outstanding as ofApril 2, 2022 andMarch 27, 2021 (dollars in millions): Fiscal Years Ended April 2, March 27, 2022 2021 Senior Secured Revolving Credit Facility: Revolving Credit Facility (excluding up to a$500 million accordion feature) (1) Total Availability$ 1,000 $ 1,000 Borrowings outstanding (2) 175 - Letter of credit outstanding 21 27 Remaining availability$ 804 $ 973 Term Loan Facility ($1.6 billion ) Borrowings Outstanding, net of debt issuance costs (2)$ 495 $ 865 Remaining availability $ - $ - 364 Credit Facility ($230 million ) Total availability $ -$ 230 Remaining availability $ -$ 230 Senior Notes due 2024 Borrowings Outstanding, net of debt issuance costs and discount amortization (2)$ 448 $ 447 Other Borrowings (3)$ 42 $ 21 Hong Kong Uncommitted Credit Facility: Total availability (80 million and100 million Hong Kong Dollar ) (4)$ 10 $ 13 Borrowings outstanding - -
Remaining availability (80 million and
10$ 13 China Uncommitted Credit Facility: Total availability (45 million and 100 million Chinese Yuan) (4) $ 7$ 15 Borrowings outstanding - $ -
Remaining availability (45 million and 100 million Chinese Yuan) $
7$ 15 Japan Credit Facility: Total availability (1.0 billion Japanese Yen ) $ 8 $ 9
Outstanding borrowings (0.0 billion and
- 9
Remaining availability (1.0 billion and
8 $ - Versace Uncommitted Credit Facility: Total availability (48 million and57 million Euro ) (4)$ 52 $ 67 Borrowings outstanding (0 million Euro ) - - Remaining availability (48 million and57 million Euro )$ 52 $ 67 Total borrowings outstanding (1)$ 1,160 $ 1,342 Total remaining availability$ 881 $ 1,298 (1)The financial covenant in our 2018 Credit Facility requiring us to maintain a ratio of the sum of total indebtedness plus the capitalized amount of all operating lease obligations for the last four fiscal quarters to Consolidated EBITDAR of no greater than 3.75 to 1 was previously waived through the fiscal quarter endingJune 26, 2021 . We terminated the waiver period effectiveMay 26, 2021 . Effective as of that date, the Company was required to comply with the quarterly maximum net leverage ratio test of 4.00 to 1.0. As ofApril 2, 2022 andMarch 27, 2021 , we were 57 -------------------------------------------------------------------------------- Table of Contents in compliance with all covenants related to our agreements then in effect governing our debt. (2)As ofApril 2, 2022 , all amounts are recorded as long-term debt in our consolidated balance sheets. As ofMarch 27, 2021 , all amounts were recorded as long-term debt, except for the current portion of$97 million outstanding under the 2018 Term Loan Facility, which was recorded within short-term debt in our consolidated balance sheets. (3)The balance as ofApril 2, 2022 consists of$21 million related to our supplier finance program recorded within short-term debt in our consolidated balance sheets,$18 million related to the sale of certain Versace tax receivables, with$8 million and$10 million , respectively, recorded within short-term debt and long-term debt in our consolidated balance sheets and$3 million of other loans recorded as long-term debt in our consolidated balance sheets. The balance as ofMarch 27, 2021 consists of$17 million related to our supplier finance program recorded within short term debt in our consolidated balance sheets and$4 million of other loans recorded as long-term debt in our consolidated balance sheets. (4)The balance as ofApril 2, 2022 represents the total availability of the credit facility, which excludes bank guarantees. (5)Recorded as short-term debt in our consolidated balance sheets as ofMarch 27, 2021 . We believe that our 2018 Credit Facility is adequately diversified with no undue concentration in any one financial institution. As ofApril 2, 2022 , there were 25 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 to the accompanying consolidated financial statements for detailed information on our credit facilities and debt securities.
Share buyback program
The following table shows our buybacks of own shares during the financial years ended
Closed fiscal years
April 2 ,March 27, 2022 2021 Cost of shares repurchased under share repurchase program $
$650 – Fair value of shares withheld to cover tax liability for vested restricted stock awards
11 1 Total cost of treasury shares repurchased $
$661 1
Shares repurchased under share repurchase program 11,014,541 -
Shares withheld to cover tax withholding obligations 203,863 48,528
11,218,404 48,528
During the first quarter of Fiscal 2021, the Company suspended its $500 million
share-repurchase program in response to the continued impact of the COVID-19
pandemic. See Note 15 in the accompanying financial statements for additional
information.
On November 3, 2021 , we announced that our Board of Directors had terminated our
existing $500 million share repurchase program (the "Prior Plan"), with
$250 million of availability remaining, and authorized a new share repurchase
program (the "Fiscal 2022 Plan") pursuant to which we may, from time to time,
repurchase up to $1.0 billion of our outstanding ordinary shares within a period
of two years from the effective date of the program. As of April 2, 2022 , the
remaining availability under the Fiscal 2022 Plan was $500 million . Share
repurchases may be made in open market or privately negotiated transactions,
subject to market conditions, applicable legal requirements, trading
transactions under our insider trading policy and other relevant factors. The
program may be suspended or discontinued at any time.
On June 1, 2022 , we announced that its Board of Directors has terminated our
Fiscal 2022 Plan, with $500 million of availability remaining, and authorized a
new share repurchase program pursuant to which we may, from time to time,
repurchase up to $1.0 billion of our outstanding ordinary shares within period
of two years from the effective date of the program. Share repurchases may be
made in open market or privately negotiated transactions, subject to market
conditions, applicable legal requirements, trading restrictions under our
insider trading policy and other relevant factors. The program may be suspended
or discontinued at any time.
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See Notes 15 and 20 to the accompanying consolidated financial statements for more information.
Contractual obligations and commercial commitments
As ofApril 2, 2022 , our contractual obligations and commercial commitments were as follows (in millions): Fiscal Fiscal Fiscal 2028 and Fiscal Years Fiscal 2023 2024-2025 2026-2027 thereafter Total Operating leases$ 482 $ 734
Net interest (1)
- - - - - Inventory purchase obligations 1,016 - - - 1,016 Other commitments 77 26 5 - 108 Short-term debt 29 - - - 29 Long-term debt - 1,135 - - 1,135 Total$ 1,604 $ 1,895 $ 427 $ 426$ 4,352
(1) As of fiscal year 2023, we will be in an interest income position, therefore we would not have any interest expense obligations due during the above periods.
Operating lease obligations represent equipment leases and the minimum lease rental payments due 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 leased properties for our retail stores. Interest, net represents the estimated net interest expense associated with our term loan based on the current interest rate and interest from our interest rate swap. It also includes the estimated net interest income from our net investment hedges.
Inventory purchase obligations represent contractual obligations for future inventory purchases.
Other commitments include non-cancellable contractual obligations related to marketing and advertising agreements, information technology agreements and supply agreements.
The above table excludes current liabilities (other than short-term debt and short-term operating lease liabilities) recorded as ofApril 2, 2022 , 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$36 million atApril 2, 2022 , including$15 million in letters of credit issued outside of the 2018 Credit Facility. In addition, as ofApril 2, 2022 , bank guarantees of approximately$30 million were supported by our various credit facilities. 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.
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