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Capri Holdings Limited Announces Third Quarter Fiscal 2022 Results

·13 min read

Revenue and Earnings Exceed Expectations

Raises Full Year Adjusted Earnings Per Share Outlook to Highest Level in Company's History

Provides Outlook for Fiscal 2023 Revenue and Earnings Per Share to Increase Double Digits

http://www.capriholdings.com/3Q22Presentation

LONDON, February 02, 2022--(BUSINESS WIRE)--Capri Holdings Limited (NYSE:CPRI), a global fashion luxury group, today announced its financial results for the third quarter of Fiscal 2022 ended December 25, 2021.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20220202005266/en/

Versace (Photo: Business Wire)

Third Quarter Fiscal 2022 Highlights

  • Revenue increased 24%, with better than anticipated results across all three luxury houses

  • Adjusted gross margin expanded 40 basis points versus prior year

  • Adjusted operating margin of 22.3%

  • Adjusted earnings per share of $2.22

  • Raised full year adjusted earnings per share outlook to $6.00

John D. Idol, the Company's Chairman and Chief Executive Officer, said, "We are pleased to report third quarter performance exceeded our expectations for revenue, operating margin and earnings per share. Results were driven by strong momentum across all three luxury houses reflecting the power of Versace, Jimmy Choo and Michael Kors as well as the continued execution of our strategic initiatives. We are especially proud of our performance given the ongoing headwinds caused by the pandemic, including regional restrictions and supply chain challenges. Capri Holdings results are a testament to the dedication and agility of our teams across the globe."

Mr. Idol continued, "We are raising fiscal 2022 revenue and earnings guidance based on the strength across all our luxury houses. Looking to fiscal 2023, we expect to generate double-digit revenue and earnings growth. This outlook reflects the success of our ongoing strategic initiatives as well as a continued recovery from the global pandemic. Longer term the power of Versace, Jimmy Choo and Michael Kors position Capri Holdings to deliver multiple years revenue and earnings growth."

Third Quarter Fiscal 2022 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 ("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. Due to the current and ongoing impact of the COVID-19 pandemic, the Company will not be providing comparable store sales results. The Company believes the most comprehensive measure of performance in this environment is total revenues compared to the same period in the prior year.

Overview of Capri Holdings Third Quarter Fiscal 2022 Results:

  • Total revenue of $1.6 billion increased 24% compared to last year. On a constant currency basis, total revenue increased 25%.

  • Gross profit was $1.0 billion and gross margin was 65.1%, compared to $848 million and 65.1% in the prior year. Adjusted gross profit was $1.0 billion and adjusted gross margin was 65.1%, compared to $843 million and 64.7% in the prior year. Adjusted gross margin expansion reflected the strong ongoing benefits of the Company’s strategic initiatives, largely offset by approximately 400 basis points of higher supply chain costs compared to prior year.

  • Income from operations was $331 million and operating margin was 20.6%, compared to $167 million and 12.8% in the prior year. Adjusted income from operations was $359 million and operating margin was 22.3%, compared to $257 million and 19.7% in the prior year.

  • Net income was $322 million, or $2.11 per diluted share, compared to $179 million, or $1.18 per diluted share, in the prior year. Adjusted net income was $339 million, or $2.22 per diluted share, compared to $250 million or, $1.65 per diluted share, in the prior year.

  • Net inventory on December 25, 2021 was $978 million, a 24.0% increase compared to the prior year. This includes a significant increase in in-transit inventory. On-hand inventory levels were lower than expected which constrained the Company’s ability to deliver higher revenue in the quarter.

Versace Third Quarter Fiscal 2022 Results:

  • Versace revenue of $251 million increased 29% compared to the prior year. On a constant currency basis, total revenue increased 34%.

  • Versace operating income was $32 million and operating margin was 12.7%, compared to $13 million and 6.7% in the prior year.

Jimmy Choo Third Quarter Fiscal 2022 Results:

  • Jimmy Choo revenue of $178 million increased 47% compared to the prior year. On a constant currency basis, total revenue increased 43%.

  • Jimmy Choo operating income was $16 million and operating margin was 9.0%, compared to $(8) million and (6.6)% in the prior year.

Michael Kors Third Quarter Fiscal 2022 Results:

  • Michael Kors revenue of $1.18 billion increased 20% compared to the prior year. On a constant currency basis, total revenue increased 21%.

  • Michael Kors operating income was $335 million and operating margin was 28.4%, compared to $281 million and 28.5% in the prior year.

Share Repurchase Program

During the third quarter, the Company repurchased approximately 3.2 million ordinary shares for approximately $200 million in open market transactions. As of December 25, 2021, the remaining availability under the Company's share repurchase authorization was $800 million.

Outlook

The following guidance is provided on an adjusted, non-GAAP basis. Due to the ongoing dynamic nature of the COVID-19 pandemic, financial results could differ materially from the current outlook due to a number of external events which are not reflected in our guidance, including any significant additional store closures or new government restrictions that could further impact traffic and sales trends as well as any greater supply chain disruptions that could further extend inventory delays or increase transportation expenses.

The Company also notes that Fiscal 2022 includes a 53rd week in its fiscal fourth quarter.

Given the impact of the pandemic and ongoing supply chain challenges, the Company is also providing its preliminary view of Fiscal 2023.

Fiscal Year 2022 Outlook

For Capri Holdings, the Company expects the following:

  • Total revenue of approximately $5.56 billion, including approximately $75 million from the 53rd week

  • Operating margin of approximately 19%

  • Net interest income of approximately $17 million

  • Effective tax rate of approximately 14%

  • Weighted average diluted shares outstanding of approximately 153 million

  • Diluted earnings per share of approximately $6.00

For Versace, the Company expects the following:

  • Total revenue of approximately $1.08 billion

  • Operating margin of approximately 17%

For Jimmy Choo, the Company expects the following:

  • Total revenue of approximately $600 million

  • Operating margin of approximately 2%

For Michael Kors, the Company expects the following:

  • Total revenue of approximately $3.88 billion

  • Operating margin of approximately 25%

Fourth Quarter Fiscal 2022 Outlook

For Capri Holdings, the Company expects the following:

  • Total revenue of approximately $1.4 billion

  • Operating margin of approximately 13.5%

  • Net interest income of approximately $5 million

  • Effective tax rate of approximately 38%

  • Weighted average diluted shares outstanding of approximately 151 million

  • Diluted earnings per share of approximately $0.80

For Versace, the Company expects the following:

  • Total revenue of approximately $310 million

  • Operating margin of approximately 15%

For Jimmy Choo, the Company expects the following:

  • Total revenue of approximately $140 million

  • Operating margin of approximately (10)%

For Michael Kors, the Company expects the following:

  • Total revenue of approximately $950 million

  • Operating margin of approximately 20%

Fiscal Year 2023 Outlook

For Capri Holdings, the Company expects the following:

  • Total revenue of approximately $6.1 billion

  • Gross margin expansion of approximately 50 basis points reflecting benefits from strategic initiatives partially offset by higher supply chain costs

  • Operating margin of approximately 19%

  • Diluted earnings per share of approximately $6.60

For Versace, the Company expects the following:

  • Total revenue of approximately $1.3 billion

  • Operating margin of approximately 18%

For Jimmy Choo, the Company expects the following:

  • Total revenue of approximately $675 million

  • Operating margin of approximately 8%

For Michael Kors, the Company expects the following:

  • Total revenue of approximately $4.125 billion

  • Operating margin of approximately 25%

Fiscal Year 2023 Quarterly Outlook

For Capri Holdings, the Company expects the following:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Revenue

~$1.35B

~$1.45B

~$1.75B

~$1.55B

Adjusted Operating Margin

~18.5%

~18.0%

~23.5%

~15.0%

Adjusted EPS

~$1.45

~$1.60

~$2.50

~$1.05

Conference Call Information

A conference call to discuss third quarter Fiscal 2022 results is scheduled for today, February 2, 2022 at 8:30 a.m. ET. A live webcast of the conference call will be available on the Company’s website, www.capriholdings.com. In addition, a replay will be available shortly after the conclusion of the call and remain available until February 9, 2022. To access the telephone replay, listeners should dial 1-844-512-2921 or 1-412-317-6671 for international callers. The access code for the replay is 13726173. A replay of the webcast will also be available within two hours of the conclusion of the call.

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 COVID-19 related charges, long-lived asset impairments, ERP implementation costs, Capri transformation costs, restructuring and other charges. 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 Limited is a global fashion luxury group, consisting of iconic brands that are industry leaders in design, style and craftsmanship. Its 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. The Company’s goal is to continue to extend the global reach of its brands while ensuring that they maintain their independence and exclusive DNA. Capri Holdings Limited is publicly listed on the New York Stock Exchange under the ticker CPRI.

Forward-Looking Statements

This press release contains statements which are, or may be deemed to be, "forward-looking statements." Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of Capri Holdings Limited (the "Company") about future events, 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. 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; 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; political or economic instability in principal markets; adverse outcomes in litigation; and general, local and global economic, political, business and market conditions, as well as those risks set forth in the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2021 (File No. 001-35368). Any forward-looking statement in this press release speaks only as of the date made and the Company 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

Nine Months Ended

December 25,
2021

December 26,
2020

December 25,
2021

December 26,
2020

Total revenue

$

1,609

$

1,302

$

4,162

$

2,863

Cost of goods sold

561

454

1,374

1,003

Gross profit

1,048

848

2,788

1,860

Total operating expenses

717

681

2,004

1,702

Income from operations

331

167

784

158

Other income, net

(3

)

(2

)

(4

)

Interest (income) expense, net

(7

)

10

(11

)

39

Foreign currency (gain) loss

(4

)

(13

)

1

(16

)

Income before income taxes

342

173

796

139

Provision for (benefit from) income taxes

19

(5

)

54

20

Net income

323

178

742

119

Less: Net income (loss) attributable to noncontrolling interests

1

(1

)

1

(2

)

Net income attributable to Capri

$

322

$

179

$

741

$

121

Weighted average ordinary shares outstanding:

Basic

149,717,485

150,661,252

150,975,773

150,236,612

Diluted

152,375,294

151,958,057

153,834,120

151,417,457

Net income per ordinary share:

Basic

$

2.15

$

1.19

$

4.91

$

0.80

Diluted

$

2.11

$

1.18

$

4.82

$

0.80

SCHEDULE 2

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

December 25,
2021

March 27,
2021

December 26,
2020

Assets

Current assets

Cash and cash equivalents

$

261

$

232

$

229

Receivables, net

449

373

369

Inventories, net

978

736

789

Prepaid expenses and other current assets

384

205

106

Total current assets

2,072

1,546

1,493

Property and equipment, net

460

485

518

Operating lease right-of-use assets

1,401

1,504

1,575

Intangible assets, net

1,895

1,992

2,102

Goodwill

1,447

1,498

1,615

Deferred tax assets

178

278

283

Other assets

227

178

179

Total assets

$

7,680

$

7,481

$

7,765

Liabilities and Shareholders’ Equity

Current liabilities

Accounts payable

$

593

$

512

$

495

Accrued payroll and payroll related expenses

149

116

107

Accrued income taxes

166

126

66

Short-term operating lease liabilities

437

447

448

Short-term debt

26

123

169

Accrued expenses and other current liabilities

381

297

309

Total current liabilities

1,752

1,621

1,594

Long-term operating lease liabilities

1,503

1,657

1,724

Deferred tax liabilities

443

397

444

Long-term debt

976

1,219

1,243

Other long-term liabilities

231

430

405

Total liabilities

4,905

5,324

5,410

Commitments and contingencies

Shareholders’ equity

Ordinary shares, no par value; 650,000,000 shares authorized; 221,322,510 shares issued and 147,252,018 outstanding at December 25, 2021; 219,222,937 shares issued and 151,280,011 outstanding at March 27, 2021 and 218,624,581 shares issued and 150,682,036 outstanding at December 26, 2020

Treasury shares, at cost (74,070,492 shares at December 25, 2021, 67,942,926 shares at March 27, 2021 and 67,942,545 shares at December 26, 2020)

(3,686

)

(3,326

)

(3,326

)

Additional paid-in capital

1,238

1,158

1,138

Accumulated other comprehensive income

213

56

91

Retained earnings

5,011

4,270

4,453

Total shareholders’ equity of Capri

2,776

2,158

2,356

Noncontrolling interest

(1

)

(1

)

(1

)

Total shareholders’ equity

2,775

2,157

2,355

Total liabilities and shareholders’ equity

$

7,680

$

7,481

$

7,765

SCHEDULE 3

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED SEGMENT DATA

($ in millions)

(Unaudited)

Three Months Ended

Nine Months Ended

December 25,
2021

December 26,
2020

December 25,
2021

December 26,
2020

Revenue by Segment and Region:

Versace

The Americas

$

89

$

57

$

283

$

132

EMEA

99

76

304

183

Asia

63

62

186

168

Versace Revenue

251

195

773

483

Jimmy Choo

The Americas

51

32

127

71

EMEA

69

40

175

102

Asia

58

49

155

121

Jimmy Choo Revenue

178

121

457

294

Michael Kors

The Americas

814

671

1,960

1,321

EMEA

237

183

616

447

Asia

129

132

356

318

Michael Kors Revenue

1,180

986

2,932

2,086

Total Revenue

$

1,609

$

1,302

$

4,162

$

2,863

Income (Loss) from Operations:

Versace

$

32

$

13

$

135

$

(8

)

Jimmy Choo

16

(8

)

28

(37

)

Michael Kors

335

281

795

423

Total segment income from operations

383

...

286

958

378

Less: Corporate expenses

(37

)

(29

)

(123