CAPRI HOLDINGS LTD, 10-Q filed on 7/30/2021
Quarterly Report
v3.21.2
Cover Page - shares
3 Months Ended
Jun. 26, 2021
Jul. 23, 2021
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 26, 2021  
Document Transition Report false  
Entity File Number 001-35368  
Entity Registrant Name CAPRI HOLDINGS LTD  
Entity Incorporation, State or Country Code D8  
Entity Address, Address Line One 33 Kingsway  
Entity Address, City or Town London  
Entity Address, Country GB  
Entity Address, Postal Zip Code WC2B 6UF  
Country Region 44  
City Area Code 207  
Local Phone Number 632 8600  
Title of 12(b) Security Ordinary Shares, no par value  
Trading Symbol CPRI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   152,014,472
Amendment Flag false  
Document Fiscal Year Focus 2022  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0001530721  
Current Fiscal Year End Date --04-02  
v3.21.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Jun. 26, 2021
Mar. 27, 2021
Current assets    
Cash and cash equivalents $ 356 $ 232
Receivables, net 382 373
Inventories, net 760 736
Prepaid expenses and other current assets 209 205
Total current assets 1,707 1,546
Property and equipment, net 472 485
Operating lease right-of-use assets 1,468 1,504
Intangible assets, net 1,996 1,992
Goodwill 1,512 1,498
Deferred tax assets 281 278
Other assets 188 178
Total assets 7,624 7,481
Current liabilities    
Accounts payable 464 512
Accrued payroll and payroll related expenses 131 116
Accrued income taxes 101 126
Short-term operating lease liabilities 442 447
Short-term debt 127 123
Accrued expenses and other current liabilities 297 297
Total current liabilities 1,562 1,621
Long-term operating lease liabilities 1,594 1,657
Deferred tax liabilities 443 397
Long-term debt 1,206 1,219
Other long-term liabilities 369 430
Total liabilities 5,174 5,324
Commitments and contingencies
Shareholders’ equity    
Ordinary shares, no par value; 650,000,000 shares authorized; 220,973,560 shares issued and 151,942,484 outstanding at June 26, 2021; 219,222,937 shares issued and 151,280,011 outstanding at March 27, 2021 0 0
Treasury shares, at cost (69,031,076 shares at June 26, 2021 and 67,942,926 shares at March 27, 2021) (3,385) (3,326)
Additional paid-in capital 1,201 1,158
Accumulated other comprehensive income 147 56
Retained earnings 4,489 4,270
Total shareholders’ equity of Capri 2,452 2,158
Noncontrolling interest (2) (1)
Total shareholders’ equity 2,450 2,157
Total liabilities and shareholders’ equity $ 7,624 $ 7,481
v3.21.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares
Jun. 26, 2021
Mar. 27, 2021
Shareholders’ equity    
Ordinary shares, shares authorized (in shares) 650,000,000 650,000,000
Ordinary shares, shares issued (in shares) 220,973,560 219,222,937
Ordinary shares, shares outstanding (in shares) 151,942,484 151,280,011
Treasury shares (in shares) 69,031,076 67,942,926
v3.21.2
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Millions
3 Months Ended
Jun. 26, 2021
Jun. 27, 2020
Income Statement [Abstract]    
Total revenue $ 1,253 $ 451
Cost of goods sold 397 149
Gross profit 856 302
Selling, general and administrative expenses 545 402
Depreciation and amortization 50 54
Restructuring and other charges 3 8
Total operating expenses 598 464
Income (loss) from operations 258 (162)
Other income, net 0 (1)
Interest expense, net 1 17
Foreign currency loss (gain) 1 (3)
Income (loss) before provision for income taxes 256 (175)
Provision for income taxes 37 5
Net income (loss) 219 (180)
Less: Net income attributable to noncontrolling interest 0 0
Net income (loss) attributable to Capri $ 219 $ (180)
Weighted average ordinary shares outstanding:    
Basic (in shares) 151,312,103 149,556,310
Diluted (in shares) 154,890,483 149,556,310
Net income (loss) per ordinary share attributable to Capri:    
Basic (in dollars per share) $ 1.45 $ (1.21)
Diluted (in dollars per share) $ 1.41 $ (1.21)
Statements of Comprehensive Income (Loss):    
Net income (loss) $ 219 $ (180)
Foreign currency translation adjustments 90 (3)
Net loss on derivatives 0 (1)
Comprehensive income (loss) 309 (184)
Less: Foreign currency translation adjustments attributable to noncontrolling interest (1) 0
Comprehensive income (loss) attributable to Capri $ 310 $ (184)
v3.21.2
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
$ in Millions
Total
Total Equity of Capri
Ordinary Shares
Additional Paid-in Capital
Treasury Shares
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Non-controlling Interests
Beginning balance (in shares) at Mar. 28, 2020     217,320,000          
Beginning balance at Mar. 28, 2020 $ 2,168 $ 2,167 $ 0 $ 1,085 $ (3,325) $ 75 $ 4,332 $ 1
Beginning balance, treasury (in shares) at Mar. 28, 2020         (67,894,000)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) (180) (180)         (180) 0
Other comprehensive income (loss) (4) (4)       (4)   0
Comprehensive income (loss) (184) (184)           0
Vesting of restricted awards, net of forfeitures (in shares)     953,000          
Exercise of employee share options (in shares)     160,000          
Share based compensation expense 24 24   24        
Repurchase of common stock (in shares)         (38,000)      
Repurchase of common stock (1) (1)     $ (1)      
Ending balance (in shares) at Jun. 27, 2020     218,273,000          
Ending balance at Jun. 27, 2020 $ 2,007 2,006 $ 0 1,109 $ (3,326) 71 4,152 1
Ending balance, treasury (in shares) at Jun. 27, 2020         (67,932,000)      
Beginning balance (in shares) at Mar. 27, 2021 219,222,937   219,223,000          
Beginning balance at Mar. 27, 2021 $ 2,157 2,158 $ 0 1,158 $ (3,326) 56 4,270 (1)
Beginning balance, treasury (in shares) at Mar. 27, 2021 (67,942,926)       (67,943,000)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) $ 219 219         219 0
Other comprehensive income (loss) 90 91       91   (1)
Comprehensive income (loss) 309 310           (1)
Vesting of restricted awards, net of forfeitures (in shares)     1,591,000          
Exercise of employee share options 7 7   7        
Share based compensation expense 36 36   36        
Repurchase of common stock (in shares)         (1,088,000)      
Repurchase of common stock $ (59) (59)     $ (59)      
Ending balance (in shares) at Jun. 26, 2021 220,973,560   220,974,000          
Ending balance at Jun. 26, 2021 $ 2,450 $ 2,452 $ 0 $ 1,201 $ (3,385) $ 147 $ 4,489 $ (2)
Ending balance, treasury (in shares) at Jun. 26, 2021 (69,031,076)       (69,031,000)      
v3.21.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Jun. 26, 2021
Jun. 27, 2020
Cash flows from operating activities    
Net income (loss) $ 219 $ (180)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 50 54
Share based compensation expense 36 24
Deferred income taxes 22 0
Changes to lease related balances, net (36) (24)
Tax (benefit) deficit on exercise of share options (3) 5
Amortization of deferred financing costs 1 1
Foreign currency gains (12) (3)
Credit losses (1) (6)
Change in assets and liabilities:    
Receivables, net (7) 131
Inventories, net (17) (119)
Prepaid expenses and other current assets (9) 15
Accounts payable (40) 167
Accrued expenses and other current liabilities (6) 0
Other long-term assets and liabilities 7 2
Net cash provided by operating activities 204 67
Cash flows from investing activities    
Capital expenditures (23) (32)
Net cash used in investing activities (23) (32)
Cash flows from financing activities    
Debt borrowings 59 396
Debt repayments (70) (811)
Debt issuance costs 0 (4)
Repurchase of common stock (59) (1)
Exercise of employee share options 7 0
Other financing activities 8 0
Net cash used in financing activities (55) (420)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (2) 0
Net increase (decrease) in cash, cash equivalents and restricted cash 124 (385)
Beginning of period 234 592
End of period 358 207
Supplemental disclosures of cash flow information    
Cash paid for interest 17 20
Net cash paid (received) for income taxes 28 (6)
Supplemental disclosure of non-cash investing and financing activities    
Accrued capital expenditures $ 14 $ 20
v3.21.2
Business and Basis of Presentation
3 Months Ended
Jun. 26, 2021
Accounting Policies [Abstract]  
Business and Basis of Presentation Business and Basis of Presentation
Capri Holdings Limited ("Capri," and together with its subsidiaries, the "Company") was incorporated in the British Virgin Islands (“BVI”) on December 13, 2002. The Company is a holding company that owns brands that are leading designers, marketers, distributors and retailers of branded women’s and men’s accessories, ready-to-wear and footwear bearing the Versace, Jimmy Choo and Michael Kors tradenames and related trademarks and logos. The Company operates in three reportable segments: Versace, Jimmy Choo and Michael Kors. See Note 16 for additional information.
The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned or controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The interim consolidated financial statements as of June 26, 2021 and for the three months ended June 26, 2021 and June 27, 2020 are unaudited. The Company consolidates the results of its Versace business on a one-month lag, as consistent with prior periods. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation in conformity with U.S. GAAP. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended March 27, 2021, as filed with the Securities and Exchange Commission on May 26, 2021, in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full fiscal year.
The Company utilizes a 52 to 53-week fiscal year and the term “Fiscal Year” or “Fiscal” refers to that 52-week or 53-week period. The results for the three months ended June 26, 2021 and June 27, 2020 are based on 13-week periods. The Company’s Fiscal Year 2022 is a 53-week period ending April 2, 2022.
v3.21.2
Summary of Significant Accounting Policies
3 Months Ended
Jun. 26, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to use judgment and make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. The most significant assumptions and estimates involved in preparing the financial statements include allowances for customer deductions, sales returns, sales discounts and credit losses, estimates of inventory net realizable value, the valuation of share-based compensation, the valuation of deferred taxes and the valuation of goodwill, intangible assets, operating lease right-of-use assets and property and equipment, along with the estimated useful lives assigned to these assets. Actual results could differ from those estimates.
Seasonality
The Company experiences certain effects of seasonality with respect to its business. The Company generally experiences greater sales during its third fiscal quarter, primarily driven by holiday season sales, and the lowest sales during its first fiscal quarter.
COVID-19 Related Government Assistance and Subsidies
As there is no definitive guidance under U.S. GAAP, the Company has applied the guidance under International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance ("IAS 20"). The Company has elected to follow the income approach under IAS 20 and recognize these funds as a reduction to the related expense in the Company’s consolidated statements of operations and comprehensive income (loss). During the three months ended June 26, 2021 and June 27, 2020, the Company recognized $4 million and $14 million, respectively, related to government assistance and subsidies.
Cash, Cash Equivalents and Restricted Cash
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Included in the Company’s cash and cash equivalents as of June 26, 2021 and March 27, 2021 are credit card receivables of $27 million and $25 million, respectively, which generally settle within two to three business days.
A reconciliation of cash, cash equivalents and restricted cash as of June 26, 2021 and March 27, 2021 from the consolidated balance sheets to the consolidated statements of cash flows is as follows (in millions):
 June 26,
2021
March 27,
2021
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$356 $232 
Restricted cash included within prepaid expenses and other current assets
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$358 $234 
Inventories, net
Inventories primarily consist of finished goods with the exception of raw materials and work in process inventory. The combined total of raw materials and work in process inventory recorded on the Company’s consolidated balance sheets was $25 million and $28 million as of June 26, 2021 and March 27, 2021, respectively.
The net realizable value of the Company’s inventory as of June 26, 2021 and March 27, 2021 includes the adverse impacts associated with the COVID-19 pandemic. This includes the impact from temporary retail store closures, wholesale customer store closures, reductions in retail store traffic, a decline in international tourism and a decrease in consumer consumption.
Derivative Financial Instruments
Forward Foreign Currency Exchange Contracts
The Company uses forward foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to these transactions. The Company employs these contracts to hedge the Company’s cash flows, as they relate to foreign currency transactions. Certain of these contracts are designated as hedges for accounting purposes, while others remain undesignated. All of the Company’s derivative instruments are recorded in the Company’s consolidated balance sheets at fair value on a gross basis, regardless of their hedge designation.
The Company designates certain contracts related to the purchase of inventory that qualify for hedge accounting as cash flow hedges. Formal hedge documentation is prepared for all derivative instruments designated as hedges, including 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 loss (gain) in the Company’s consolidated statements of operations and comprehensive income (loss). The Company classifies cash flows relating to its forward foreign currency exchange contracts related to purchase of inventory consistently with the classification of the hedged item, within cash flows from operating activities.
The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based upon their credit ratings and certain other financial factors, adhering to established limits for credit exposure. The aforementioned forward contracts generally have a term of no more than 12 months. The period of these contracts is directly related to the foreign transaction they are intended to hedge.
Net Investment Hedges
The Company also uses fixed-to-fixed cross currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between its U.S. Dollars and these foreign currencies. The Company has elected the spot method of designating these contracts under ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”, and has 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 the Company’s consolidated balance sheets. Interest accruals and coupon payments are recognized directly in interest expense in the Company’s 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.
Interest Rate Swap Agreements
The Company also uses interest rate swap agreements to hedge the variability of its cash flows resulting from floating interest rates on the Company’s borrowings. When an interest rate swap agreement qualifies for hedge accounting as a cash flow hedge, the changes in the fair value are recorded in equity as a component of accumulated other comprehensive income and are reclassified into interest expense in the same period during which the hedged transactions affect earnings.
Leases

The Company leases retail stores, office space and warehouse space under operating lease agreements that expire at various dates through September 2043. The Company’s leases generally have terms of up to 10 years, generally require a fixed annual rent and may require the payment of additional rent if store sales exceed a negotiated amount. Although most of the Company’s equipment is owned, the Company has limited equipment leases that expire on various dates through May 2025. The Company acts as sublessor in certain leasing arrangements, primarily related to closed stores under its restructuring activities, as discussed in Note 8. Fixed sublease payments received are recognized on a straight-line basis over the sublease term. The Company determines the sublease term based on the date it provides possession to the subtenant through the expiration date of the sublease.

The Company recognizes operating lease right-of-use assets and lease liabilities at lease commencement date, based on the present value of fixed lease payments over the expected lease term. The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company’s leases. The Company’s incremental borrowing rates are based on the term of the leases, the economic environment of the leases and reflect the expected interest rate it would incur to borrow on a secured basis. Certain leases include one or more renewal options. The exercise of lease renewal options is generally at the Company’s sole discretion and as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company generally does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the operating lease right-of-use asset and lease liability. Certain leases also contain termination options with an associated penalty. Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term. The Company recognizes operating lease expense on a straight-line basis over the lease term.

Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for its short-term leases on a straight-line basis over the lease term.

The Company’s leases generally provide for payments of non-lease components, such as common area maintenance, real estate taxes and other costs associated with the leased property. The Company accounts for lease and non-lease components of its real estate leases together as a single lease component and, as such, includes fixed payments of non-lease components in the measurement of the operating lease right-of-use assets and lease liabilities for its real estate leases. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet. The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.
The following table presents the Company’s supplemental cash flow information related to leases (in millions):
Three Months EndedThree Months Ended
June 26, 2021June 27, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases (1)
$149 $40 
(1)Operating cash flows used in operating leases for the three months ended June 26, 2021 and June 27, 2020 excluded $4 million and $85 million, respectively, of rent payments that have been deferred due to the COVID-19 pandemic.
During the three months ended June 26, 2021 and June 27, 2020, the Company recorded sublease income of $2 million during both periods within restructuring and other charges for stores relating to our restructuring plan and selling, general and administrative expenses for all other locations. During the three months ended June 26, 2021 and June 27, 2020, the Company recorded $7 million and $15 million, respectively, of rent concessions negotiated in connection with the impact of COVID-19 as if it were contemplated as part of the existing contract, and these concessions are recorded as a reduction to variable lease expense within selling, general and administrative expenses.
Net Income (Loss) per Share
The Company’s basic net income (loss) per ordinary share is calculated by dividing net income by the weighted average number of ordinary shares outstanding during the period. Diluted net income (loss) per ordinary share reflects the potential dilution that would occur if share option grants or any other potentially dilutive instruments, including restricted shares and restricted share units ("RSUs"), were exercised or converted into ordinary shares. These potentially dilutive securities are included in diluted shares to the extent they are dilutive under the treasury stock method for the applicable periods. Performance-based RSUs are included as diluted shares if the related performance conditions are considered satisfied as of the end of the reporting period and to the extent they are dilutive under the treasury stock method.
The components of the calculation of basic net income (loss) per ordinary share and diluted net income (loss) per ordinary share are as follows (in millions, except share and per share data):
 Three Months Ended
June 26,
2021
June 27,
2020
Numerator:
Net income (loss) attributable to Capri$219 $(180)
Denominator:
Basic weighted average shares151,312,103 149,556,310 
Weighted average dilutive share equivalents:
Share options and restricted shares/units, and performance restricted share units
3,578,380 — 
Diluted weighted average shares154,890,483 149,556,310 
Basic net income (loss) per share (1)
$1.45 $(1.21)
Diluted net income (loss) per share (1)
$1.41 $(1.21)
(1)Basic and diluted net income (loss) per share are calculated using unrounded numbers.
During the three months ended June 26, 2021, share equivalents of 610,684 shares have been excluded from the above calculations due to their anti-dilutive effect. Share equivalents of 5,388,905 shares have been excluded from the above calculations for the three months ended June 27, 2020. Diluted net loss per share attributable to Capri for the three months ended June 27, 2020 excluded all potentially dilutive securities because there was a net loss attributable to Capri for the period and, as such, the inclusion of these securities would have been anti-dilutive.
See Note 2 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2021 for a complete disclosure of the Company’s significant accounting policies.
Recently Issued Accounting Pronouncements
The Company has considered all new accounting pronouncements and, other than the recent pronouncement discussed below, have concluded that there are no new pronouncements that may have a material impact on the Company’s results of operations, financial condition or cash flows based on current information.
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and in January 2021, issued ASU 2021-01, "Reference Rate Reform: Scope". Both of these updates aim to ease the potential burden in accounting for reference rate reform. These updates provide optional expedients and exceptions, if certain criteria are met, for applying accounting principles generally accepted in the United States to contract modifications, hedging relationships and other transactions affected by the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The amendments were effective upon issuance and allow companies to adopt the amendments on a prospective basis through December 31, 2022. The Company is currently evaluating the impact of these updates on its consolidated financial statements.
v3.21.2
Revenue Recognition
3 Months Ended
Jun. 26, 2021
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
The Company accounts for contracts with its customers when there is approval and commitment from both parties, the rights of the parties and payment terms have been identified, the contract has commercial substance and collectibility of consideration is probable. Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services.
The Company sells its products through three primary channels of distribution: retail, wholesale and licensing. Within the retail and wholesale channels, substantially all of the Company’s revenues consist of sales of products that represent a single performance obligation, where control transfers at a point in time to the customer. For licensing arrangements, royalty and advertising revenue is recognized over time based on access provided to the Company’s trademarks.
Retail
The Company generates sales through directly operated stores and e-commerce sites throughout the Americas (U.S., Canada and Latin America), certain parts of EMEA (Europe, Middle East and Africa) and certain parts of Asia (including Australia).
Gift Cards. The Company sells gift cards that can be redeemed for merchandise, resulting in a contract liability upon issuance. Revenue is recognized when the gift card is redeemed or upon “breakage” for the estimated portion of gift cards that are not expected to be redeemed. “Breakage” revenue is calculated under the proportional redemption methodology, which considers the historical patterns of redemption in jurisdictions where the Company is not required to remit the value of the unredeemed gift cards as unclaimed property. The contract liability related to gift cards, net of estimated “breakage”, of $12 million and $12 million as of June 26, 2021 and March 27, 2021, respectively, is included within accrued expenses and other current liabilities in the Company’s consolidated balance sheet.
Loyalty Program. The Company offers a loyalty program, which allows its Michael Kors U.S. customers to earn points on qualifying purchases toward monetary and non-monetary rewards, which may be redeemed for purchases at Michael Kors retail stores and e-commerce sites. The Company defers a portion of the initial sales transaction based on the estimated relative fair value of the benefits based on projected timing of future redemptions and historical activity. These amounts include estimated “breakage” for points that are not expected to be redeemed.
Wholesale
The Company’s products are sold primarily to major department stores, specialty stores and travel retail shops throughout the Americas, EMEA and Asia. The Company also has arrangements where its products are sold to geographic licensees in certain parts of EMEA, Asia and South America.
Licensing
The Company provides its third-party licensees with the right to access its Versace, Jimmy Choo and Michael Kors trademarks under product and geographic licensing arrangements. Under geographic licensing arrangements, third party licensees receive the right to distribute and sell products bearing the Company’s trademarks in retail and/or wholesale channels within certain geographical areas, including Brazil, the Middle East, Eastern Europe, South Africa and certain parts of Asia.
The Company recognizes royalty revenue and advertising contributions based on the percentage of sales made by the licensees. Generally, the Company’s guaranteed minimum royalty amounts due from licensees relate to contractual periods that do not exceed 12 months, however, certain guaranteed minimums for Versace are multi-year based.
As of June 26, 2021, contractually guaranteed minimum fees from the Company’s license agreements expected to be recognized as revenue during future periods were as follows (in millions):
Contractually Guaranteed Minimum Fees
Remainder of Fiscal 2022$27 
Fiscal 202332 
Fiscal 202428 
Fiscal 202524 
Fiscal 202624 
Fiscal 2027 and thereafter75 
 Total
$210 
Sales Returns
The refund liability recorded as of June 26, 2021 and March 27, 2021 was $48 million and $46 million, respectively, and the related asset for the right to recover returned product as of June 26, 2021 and March 27, 2021 was $14 million and $14 million, respectively.
Contract Balances
Total contract liabilities were $19 million and $18 million as of June 26, 2021 and March 27, 2021, respectively. For the three months ended June 26, 2021, the Company recognized $6 million in revenue which related to contract liabilities that existed at March 27, 2021. For the three months ended June 27, 2020, the Company recognized $3 million, in revenue which related to contract liabilities that existed at March 28, 2020. There were no material contract assets recorded as of June 26, 2021 and March 27, 2021.
There were no changes in historical variable consideration estimates that were materially different from actual results.
Disaggregation of Revenue
The following table presents the Company’s segment revenue disaggregated by geographic location (in millions):
 Three Months Ended
 June 26,
2021
June 27,
2020
Versace revenue - the Americas$87 $15 
Versace revenue - EMEA87 27 
Versace revenue - Asia66 51 
 Total Versace
240 93 
Jimmy Choo revenue - the Americas38 
Jimmy Choo revenue - EMEA50 16 
Jimmy Choo revenue - Asia54 29 
Total Jimmy Choo142 51 
Michael Kors revenue - the Americas590 156 
Michael Kors revenue - EMEA165 79 
Michael Kors revenue - Asia116 72 
 Total Michael Kors
871 307 
Total revenue - the Americas715 177 
Total revenue - EMEA302 122 
Total revenue - Asia236 152 
Total revenue$1,253 $451 
See Note 3 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2021 for a complete disclosure of the Company’s revenue recognition policy.
v3.21.2
Receivables, net
3 Months Ended
Jun. 26, 2021
Receivables [Abstract]  
Receivables, net Receivables, net
Receivables, net, consist of (in millions):
June 26,
2021
March 27,
2021
Trade receivables (1)
$409 $412 
Receivables due from licensees26 20 
435 432 
Less: allowances(53)(59)
$382 $373 
(1)As of June 26, 2021 and March 27, 2021, $72 million and $81 million, respectively, of trade receivables were insured.
Receivables are presented net of allowances for discounts, markdowns, operational chargebacks and credit losses. Discounts are based on open invoices where trade discounts have been extended to customers. Markdowns are based on wholesale customers’ sales performance, seasonal negotiations with customers, historical deduction trends and an evaluation of current market conditions. Operational chargebacks are based on deductions taken by customers, net of expected recoveries. Such provisions, and related recoveries, are reflected in revenues.
The Company’s allowance for credit losses is determined through analysis of periodic aging of receivables and assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers and the impact of general economic conditions. The past due status of a receivable is based on its contractual terms. Amounts deemed uncollectible are written off against the allowance when it is probable the amounts will not be recovered. Allowance for credit losses was $22 million and $25 million as of June 26, 2021 and March 27, 2021, respectively, including the impact related to COVID-19. The Company had credit losses of $(1) million and $(6) million for the three months ended June 26, 2021 and June 27, 2020, respectively.
v3.21.2
Property and Equipment, net
3 Months Ended
Jun. 26, 2021
Property, Plant and Equipment [Abstract]  
Property and Equipment, net Property and Equipment, net
Property and equipment, net, consists of (in millions):
June 26,
2021
March 27,
2021
Leasehold improvements$732 $737 
Computer equipment and software368 359 
Furniture and fixtures350 350 
Equipment140 139 
In-store shops53 53 
Building52 51 
Land20 20 
1,715 1,709 
Less: accumulated depreciation and amortization(1,292)(1,271)
423 438 
Construction-in-progress49 47 
$472 $485 
Depreciation and amortization of property and equipment for the three months ended June 26, 2021 and June 27, 2020 was $38 million and $43 million, respectively. During the three months ended June 26, 2021 and June 27, 2020, the Company did not record any property and equipment impairment charges.
v3.21.2
Intangible Assets and Goodwill
3 Months Ended
Jun. 26, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill Intangible Assets and Goodwill
The following table details the carrying values of the Company’s intangible assets and goodwill (in millions):
 June 26,
2021
March 27,
2021
Definite-lived intangible assets:
Reacquired rights$400 $400 
Trademarks23 23 
Customer relationships442 437 
Total definite-lived intangible assets865 860 
Less: accumulated amortization(198)(184)
Net definite-lived intangible assets667 676 
Indefinite-lived intangible assets:
Jimmy Choo brand (1)
340 338 
Versace brand (2)
989 978 
1,329 1,316 
Total intangible assets, excluding goodwill$1,996 $1,992 
Goodwill (3)
$1,512 $1,498 
(1)Includes accumulated impairment of $249 million as of June 26, 2021 and March 27, 2021. The change in the carrying value since March 27, 2021 reflects the impact of foreign currency translation.
(2)The change in the carrying value since March 27, 2021 reflects the impact of foreign currency translation.
(3)Includes accumulated impairment of $265 million related to the Jimmy Choo reporting units as of June 26, 2021 and March 27, 2021. The change in the carrying value since March 27, 2021 reflects the impact of foreign currency translation.
Amortization expense for the Company’s definite-lived intangible assets for the three months ended June 26, 2021 and June 27, 2020 was $12 million and $11 million, respectively.
v3.21.2
Current Assets and Current Liabilities
3 Months Ended
Jun. 26, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Current Assets and Current Liabilities Current Assets and Current LiabilitiesPrepaid expenses and other current assets consist of the following (in millions):
June 26,
2021
March 27,
2021
Prepaid taxes$131 $133 
Other accounts receivables16 13 
Prepaid contracts11 11 
Interest receivable related to net investment hedges12 
Other44 36 
$209 $205 
Accrued expenses and other current liabilities consist of the following (in millions):
June 26,
2021
March 27,
2021
Other taxes payable$53 $46 
Return liabilities48 46 
Accrued rent (1)
19 20 
Accrued capital expenditures15 17 
Professional services12 13 
Gift cards and retail store credits12 12 
Accrued litigation12 12 
Accrued purchases and samples11 
Accrued advertising and marketing11 
Accrued interest 10 
Restructuring liability
Charitable donations (2)
20 20 
Other78 73 
$297 $297 
(1)The accrued rent balance relates to variable lease payments.
(2)Relates to a $20 million unconditional pledge to The Capri Holdings Foundation for the Advancement of Diversity in Fashion as of June 26, 2021 and March 27, 2021.
v3.21.2
Restructuring and Other Charges
3 Months Ended
Jun. 26, 2021
Restructuring and Related Activities [Abstract]  
Restructuring and Other Charges Restructuring and Other Charges
Capri Retail Store Optimization Program
As previously announced, the Company intends to close approximately 170 of its retail stores over two fiscal years, which began during Fiscal 2021 and will continue into Fiscal 2022, in connection with its Capri Retail Store Optimization Program in order to improve the profitability of its retail store fleet. In addition, the Company expects to incur approximately $75 million of one-time costs related to this program, including lease termination and other store closure costs, the majority of which are expected to result in future cash expenditures.
During the three months ended June 26, 2021, the Company closed 10 of its retail stores which have been incorporated into the Capri Retail Store Optimization Program. Net restructuring charges (gains) recorded in connection with the Capri Retail Store Optimization Program during the three months ended June 26, 2021 and June 27, 2020 were $(3) million and $3 million, respectively. The below table presents a roll forward of the Company's restructuring liability related to its Capri Retail Store Optimization Program (in millions):
Severance and benefit costsLease-related and other costsTotal
Balance at March 27, 2021$— $$
Additions charged to expense (1)
— — — 
Payments— (1)(1)
Balance at June 26, 2021$— $$

(1)Excludes a net credit of $3 million related to gains on certain lease terminations partially offset by store operating costs for previously closed stores during the three months ended June 26, 2021.
Other Restructuring Charges
In addition to the restructuring charges related to the Capri Retail Store Optimization Program, the Company incurred charges of $1 million during the three months ended June 26, 2021, primarily relating to closures of corporate locations. There were no charges for the three months ended June 27, 2020.
Other Costs
During the three months ended June 26, 2021 and June 27, 2020, the Company recorded costs of $5 million for both periods, primarily related to equity awards associated with the acquisition of Versace.
v3.21.2
Debt Obligations
3 Months Ended
Jun. 26, 2021
Debt Disclosure [Abstract]  
Debt Obligations Debt Obligations
The following table presents the Company’s debt obligations (in millions):
June 26,
2021
March 27,
2021
Term Loan$846 $870 
Senior Notes due 2024450 450 
Other44 30 
Total debt 1,340 1,350 
Less: Unamortized debt issuance costs
Less: Unamortized discount on long-term debt
Total carrying value of debt1,333 1,342 
Less: Short-term debt127 123 
Total long-term debt
$1,206 $1,219 
Senior Secured Revolving Credit Facility
On June 25, 2020, the Company entered into the second amendment (the “Second Amendment”) to its third amended and restated credit facility, dated as of November 15, 2018 (as amended, the “2018 Credit Facility”), with, among others, JPMorgan Chase Bank, N.A., as administrative agent.
Pursuant to the Second Amendment, the financial covenant in the Company’s 2018 Credit Facility required it 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 1.0 had been waived through the fiscal quarter ending June 26, 2021.
In addition, the Second Amendment added a new $230 million revolving line of credit with a maturity date of June 24, 2021 (the “364 Day Facility”).
The Second Amendment also permitted certain working capital facilities between the Company or any of its subsidiaries with a lender or an affiliate of a lender under the 2018 Credit Facility to be guaranteed under the 2018 Credit Facility guarantees and certain supply chain financings with, and up to $50 million outstanding principal amount of bilateral letters of credit and bilateral bank guarantees issued by a lender or an affiliate of a lender to be guaranteed and secured under the 2018 Credit Facility guarantees and collateral documents. The Second Amendment, among other things, also temporarily suspended the quarterly maximum leverage ratio covenant and imposed a minimum liquidity test during the period from June 25, 2020 until the earlier of (x) the date on which the Company delivers its financial statements for the fiscal quarter ending June 26, 2021 and (y) the date on which the Company certifies that its net leverage ratio as of the last day of the most recently ended fiscal quarter was no greater than 4.00 to 1.00 (the “Applicable Period”).
On May 20, 2021, the Company determined it no longer desired to maintain this additional line of credit and consequently delivered a notice to the administrative agent terminating the 364 Day Facility, and the 364 Day Facility terminated on May 25, 2021. The remainder of the 2018 Credit Facility remains in full force and effect.
On May 26, 2021 (the “Election Date”), the Company delivered to the administrative agent the certificate required to terminate the Applicable Period. Effective as of the Election Date, the Company will be required to comply with the quarterly maximum net leverage ratio test of 4.00 to 1.00.
As of June 26, 2021, and the date these financial statements were issued, the Company was in compliance with all covenants related to the 2018 Credit Facility.
As of June 26, 2021 and March 27, 2021, the Company had no borrowings outstanding under the 2018 Revolving Credit Facility. In addition, stand-by letters of credit of $28 million and $27 million were outstanding as of June 26, 2021 and March 27, 2021, respectively. At June 26, 2021 and March 27, 2021, the amount available for future borrowings under the 2018 Revolving Credit Facility were $972 million and $973 million, respectively.
As of June 26, 2021 and March 27, 2021, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $842 million and $865 million, respectively, of which $97 million for both June 26, 2021 and March 27, 2021 was recorded within short-term debt and $745 million and $768 million, respectively, and was recorded within long-term debt in its consolidated balance sheets.
During Fiscal 2021, the Company began offering a supplier financing program to certain suppliers as the Company continues to identify opportunities to improve liquidity. This program enables suppliers, at their sole discretion, to sell their receivables (i.e., the Company’s payment obligations to suppliers) to a financial institution on a non-recourse basis in order to be paid earlier than current payment terms provide. The Company’s obligations, including the amount due and scheduled payment dates, are not impacted by a suppliers’ decision to participate in this program. The Company does not reimburse suppliers for any costs they incur to participate in the program and their participation is voluntary. The amount outstanding under this program as of June 26, 2021 and March 27, 2021 was $21 million and $17 million, respectively, and was recorded within short-term debt in the Company’s consolidated balance sheets.
During the first quarter of Fiscal 2022, the Company's subsidiary, Versace, entered into an agreement with Banco BPM Banking Group ("the Bank") to sell certain tax receivables to the Bank in exchange for cash. As of June 26, 2021, the outstanding balance was $20 million, with $9 million and $11 million respectively, recorded within short-term debt and long-term debt in the Company’s consolidated balance sheets.
See Note 12 to the Company’s Fiscal 2021 Annual Report on Form 10-K for additional information regarding the Company’s credit facilities and debt obligations.
v3.21.2
Commitments and Contingencies
3 Months Ended
Jun. 26, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
In the ordinary course of business, the Company is party to various legal proceedings and claims. Although the outcome of such claims cannot be determined with certainty, the Company does not believe that the outcome of all pending legal proceedings in the aggregate will have a material adverse effect on its cash flow, results of operations or financial position.
Please refer to the Contractual Obligations and Commercial Commitments disclosure within the Liquidity and Capital Resources section of the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2021 for a detailed disclosure of other commitments and contractual obligations as of March 27, 2021.
v3.21.2
Fair Value Measurements
3 Months Ended
Jun. 26, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Financial assets and liabilities are measured at fair value using the three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in the valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally derived (unobservable). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs based on a company’s own assumptions about market participant assumptions based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date.
Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

At June 26, 2021 and March 27, 2021, the fair values of the Company’s forward foreign currency exchange contracts, interest rate swaps and net investment hedges were determined using broker quotations, which were calculations derived from observable market information: the applicable currency rates at the balance sheet date and those forward rates particular to the contract at inception. The Company makes no adjustments to these broker obtained quotes or prices, but assesses the credit risk of the counterparty and would adjust the provided valuations for counterparty credit risk when appropriate. The fair values of the forward contracts are included in prepaid expenses and other current assets, and in accrued expenses and other current liabilities in the consolidated balance sheets, depending on whether they represent assets or liabilities to the Company. The fair values of net investment hedges and interest rate swaps are included in other assets, and in other long-term liabilities in the consolidated balance sheets, depending on whether they represent assets or liabilities of the Company. See Note 12 for further detail.
All contracts are measured and recorded at fair value on a recurring basis and are categorized in Level 2 of the fair value hierarchy, as shown in the following table (in millions):
 
Fair value at June 26, 2021 using:
Fair value at March 27, 2021 using:
 Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Derivative assets:
Forward foreign currency exchange contracts
$— $$— $— $$— 
Net investment hedges— 13 — — — 
Total derivative assets$— $14 $— $— $$— 
Derivative liabilities:
Forward foreign currency exchange contracts
$— $— $— $— $$— 
Net investment hedges— 190 — — 263 — 
Interest rate swap— — — — — 
Undesignated forward currency exchange contracts— — — — — — 
Total derivative liabilities$— $190 $— $— $265 $— 
The Company’s long-term debt obligations are recorded in its consolidated balance sheets at carrying values, which may differ from the related fair values. The fair value of the Company’s long-term debt is estimated using external pricing data, including any available quoted market prices and based on other debt instruments with similar characteristics. Borrowings under revolving credit agreements, if outstanding, are recorded at carrying value, which approximates fair value due to the frequent nature of such borrowings and repayments. See Note 9 for detailed information related to carrying values of the Company’s outstanding debt. The following table summarizes the carrying values and estimated fair values of the Company’s short- and long-term debt, based on Level 2 measurements (in millions):
June 26, 2021March 27, 2021
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Senior Notes due 2024$447 $475 $447 $470 
Term Loan$842 $836 $865 $866 
Revolving Credit Facilities$— $— $— $— 
The Company’s cash and cash equivalents, accounts receivable and accounts payable are recorded at carrying value, which approximates fair value.
Non-Financial Assets and Liabilities
The Company’s non-financial assets include goodwill, intangible assets, operating lease right-of-use assets and property and equipment. Such assets are reported at their carrying values and are not subject to recurring fair value measurements. The Company’s goodwill and its indefinite-lived intangible assets (Versace and Jimmy Choo brands) are assessed for impairment at least annually, while its other long-lived assets, including operating lease right-of-use assets, property and equipment and definite-lived intangible assets, are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The Company determines the fair values of these assets based on Level 3 measurements using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations.
The Company recorded no impairment charges during the three months ended June 26, 2021 and June 27, 2020.
v3.21.2
Derivative Financial Instruments
3 Months Ended
Jun. 26, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
Forward Foreign Currency Exchange Contracts
The Company uses forward foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain of its transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to certain forecasted inventory purchases by using forward foreign currency exchange contracts. The Company only enters into derivative instruments with highly credit-rated counterparties. The Company does not enter into derivative contracts for trading or speculative purposes.
Net Investment Hedges
During the three months ended June 26, 2021, the Company 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. Certain of these contracts are supported by a credit support annex ("CSA") which provides for collateral exchange with the earliest effective date being May 2023. If the outstanding position of a contract exceeds a certain threshold governed by the aforementioned CSA's, either party is required to post cash collateral. Due to an-other-than-insignificant financing element on certain of these modified contracts, the net interest cash inflows of $8 million related to these contracts are classified as financing activities in the Company’s consolidated statements of cash flows.
As of June 26, 2021, the Company had 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 between the U.S. Dollar and these currencies. Under the terms of these contracts, the Company will exchange the semi-annual fixed rate payments on U.S. denominated debt for fixed rate payments of 0% to 4.457% in Euros and 3.588% in Japanese Yen. Certain of these contracts include mandatory early termination dates between February 2024 and February 2026, while the remaining contracts have maturity dates between March 2024 and August 2050. These contracts have been designated as net investment hedges.
When a cross-currency swap is used as a hedging instrument in a net investment hedge assessed under the spot method, the cross-currency basis spread is excluded from the assessment of hedge effectiveness and is recognized as a reduction in interest expense in the Company’s consolidated statements of operations and comprehensive income (loss). Accordingly, the Company recorded a reduction in interest expense of $12 million during the three months ended June 26, 2021, and an immaterial amount during the three months ended June 27, 2020. This increase from prior year is primarily due to the Company having higher average notional amounts outstanding on these hedges.
Interest Rate Swap
As of June 26, 2021, the Company had an interest rate swap with an initial notional amount of $500 million that will decrease to $350 million in April 2022. The swap was designated as a cash flow hedge designed to mitigate the impact of adverse interest rate fluctuations for a portion of the Company’s variable-rate debt equal to the notional amount of the swap. The interest rate swap converts the one-month Adjusted LIBOR interest rate on these borrowings to a fixed interest rate of 0.237% through December 2022.
When an interest rate swap agreement qualifies for hedge accounting as a cash flow hedge, the changes in the fair value are recorded in equity as a component of accumulated other comprehensive income and are reclassified into interest expense in the same period during which the hedged transactions affect earnings. During the three months ended June 26, 2021 and June 27, 2020, the Company recorded an immaterial amount of interest expense related to this agreement for both periods.
The following table details the fair value of the Company’s derivative contracts, which are recorded on a gross basis in the consolidated balance sheets as of June 26, 2021 and March 27, 2021 (in millions):
Fair Values
 Notional AmountsAssetsLiabilities
 June 26,
2021
March 27,
2021
June 26,
2021
March 27,
2021
June 26,
2021
March 27,
2021
Forward foreign currency exchange contracts$154 $155 $
(1)
$
(1)
$— 
(2)
$
(2)
Net investment hedges4,194 3,194 13 
(3)
(3)
190 
(4)
263 
(4)
Interest rate swap500 500 — — — 
(4)
Total designated hedges4,848 3,849 14 190 265 
Undesignated derivative contracts (5)
30 13 — — — — 
Total$4,878 $3,862 $14 $$190 $265 

(1)Recorded within prepaid expenses and other current assets in the Company’s consolidated balance sheets.
(2)Recorded within accrued expenses and other current liabilities in the Company’s consolidated balance sheets.
(3)Recorded within other assets in the Company’s consolidated balance sheets.
(4)Recorded within other long-term liabilities in the Company’s consolidated balance sheets.
(5)Primarily includes undesignated hedges of inventory purchases.
The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance sheets on a gross basis, as shown in the previous table. However, if the Company were to offset and record the asset and liability balances for its derivative instruments on a net basis in accordance with the terms of its master netting arrangements, which provide for the right to set-off amounts for similar transactions denominated in the same currencies, the resulting impact as of June 26, 2021 and March 27, 2021 would be as follows (in millions):
Forward Currency Exchange ContractsNet Investment
Hedges
Interest Rate
Swaps
June 26,
2021
March 27,
2021
June 26,
2021
March 27,
2021
June 26,
2021
March 27,
2021
Assets subject to master netting arrangements
$$$13 $$— $— 
Liabilities subject to master netting arrangements
$— $$190 $263 $— $
Derivative assets, net$$$12 $$— $— 
Derivative liabilities, net$— $— $189 $263 $— $
Currently, the Company’s master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties.
Changes in the fair value of the Company’s forward foreign currency exchange contracts that are designated as accounting hedges are recorded in equity as a component of accumulated other comprehensive income and are reclassified from accumulated other comprehensive income into earnings when the items underlying the hedged transactions are recognized into earnings, as a component of cost of goods sold within the Company’s consolidated statements of operations and comprehensive income (loss). The net gain or loss on net investment hedges are reported within foreign currency translation gains and losses (“CTA”) as a component of accumulated other comprehensive income on the Company’s consolidated balance sheets. Upon discontinuation of the hedge, such amounts remain in CTA until the related investment is sold or liquidated. Changes in the fair value of the Company’s interest rate swaps that are designated as accounting hedges are recorded in equity as a component of accumulated other comprehensive income and are reclassified from accumulated other comprehensive income into earnings
when the items underlying the hedged transactions are recognized into earnings, as a component of interest expense within the Company’s consolidated statements of operations and comprehensive income (loss).
The following table summarizes the pre-tax impact of the gains and losses on the Company’s designated forward foreign currency exchange contracts, net investment hedges and interest rate swaps (in millions):
Three Months Ended
June 26, 2021June 27, 2020
Pre-Tax Gains (Losses)
Recognized in OCI
Pre-Tax Losses
Recognized in OCI
Designated forward foreign currency exchange contracts
$(1)$— 
Designated net investment hedges$83 $— 
Designated interest rate swaps$— $(1)
The following tables summarize the pre-tax impact of the gains and losses within the consolidated statements of operations and comprehensive income (loss) related to the designated forward foreign currency exchange contracts for the three months ended June 26, 2021 and June 27, 2020 (in millions):
Three Months Ended
Pre-Tax Loss (Gain) Reclassified from
Accumulated OCI
Location of Gain Recognized
June 26, 2021June 27, 2020
Designated forward foreign currency exchange contracts
$$(1)Cost of goods sold
The Company expects that substantially all of the amounts currently recorded in accumulated other comprehensive income for its forward foreign currency exchange contracts will be reclassified into earnings during the next 12 months, based upon the timing of inventory purchases and turnover.
Undesignated Hedges
During the three months ended June 26, 2021 and June 27, 2020, the net impact of changes in the fair value of undesignated forward foreign currency exchange contracts recognized within foreign currency loss (gain) in the Company’s consolidated statements of operations and comprehensive income (loss) was immaterial.
v3.21.2
Shareholders' Equity
3 Months Ended
Jun. 26, 2021
Equity [Abstract]  
Shareholders' Equity Shareholders’ Equity
Share Repurchase Program
During the first quarter of Fiscal 2022, the Company reinstated its $500 million share-repurchase program, which was previously suspended during the first quarter of Fiscal 2021 in response to the impact of the COVID-19 pandemic and the provisions of the Second Amendment of the 2018 Credit Facility. During the three months ended June 26, 2021, the Company purchased 921,080 shares for a total cost of approximately $50 million including commission, through open market transactions under the current plan. As of June 26, 2021, the remaining availability under the Company’s share repurchase program was $350 million. During the three months ended June 27, 2020, the Company did not purchase any shares through open market transactions under the current plan, as the Company's share-repurchase plan was suspended at that time. Share repurchases may be made in open market or privately negotiated transactions, subject to market conditions, applicable legal requirements, trading transactions under the Company’s insider trading policy and other relevant factors. The program may be suspended or discontinued at any time.
The Company also has in place a “withhold to cover” repurchase program, which allows the Company to withhold ordinary shares from certain executive officers and directors to satisfy minimum tax withholding obligations relating to the vesting of their restricted share awards. During the three month periods ended June 26, 2021 and June 27, 2020, the Company
withheld 167,070 shares and 38,119 shares, respectively, with a fair value of $9 million and $1 million, respectively, in satisfaction of minimum tax withholding obligations relating to the vesting of restricted share awards.
Accumulated Other Comprehensive Income (Loss)
The following table details changes in the components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes, for the three months ended June 26, 2021 and June 27, 2020, respectively (in millions):
Foreign
Currency
Translation
Gains (Losses) (1)
Net (Losses) Gains on Derivatives (2)
Other Comprehensive Income (Loss) Attributable to Capri
Balance at March 27, 2021$57 $(1)$56 
Other comprehensive income (loss) before reclassifications91 (1)90 
Less: amounts reclassified from AOCI to earnings
— (1)(1)
Other comprehensive income, net of tax91 — 91 
Balance at June 26, 2021$148 $(1)$147 
Balance at March 28, 2020$72 $$75 
Other comprehensive loss before reclassifications (3)— (3)
Less: amounts reclassified from AOCI to earnings
— 
Other comprehensive loss, net of tax(3)(1)(4)
Balance at June 27, 2020$69 $$71 
(1)Foreign currency translation gains and losses for the three months ended June 26, 2021 primarily include a net loss of $1 million on intra-entity transactions that are of a long-term investment nature, and a $64 million gain, net of taxes of $19 million, relating to the Company's net investment hedges, in addition to a net $27 million translation gain. Foreign currency translation gains and losses for the three months ended June 27, 2020 primarily include net gains of $1 million on intra-entity transactions that are of a long-term investment nature.
(2)Reclassified amounts primarily relate to the Company’s forward foreign currency exchange contracts for inventory purchases and are recorded within cost of goods sold in the Company’s consolidated statements of operations and comprehensive income (loss). All tax effects were not material for the periods presented.
v3.21.2
Share-Based Compensation
3 Months Ended
Jun. 26, 2021
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Share-Based CompensationThe Company grants equity awards to certain employees and directors of the Company at the discretion of the Company’s Compensation and Talent Committee. The Company has two equity plans, one stock option plan adopted in Fiscal 2008 (as amended and restated, the “2008 Plan”), and the Omnibus Incentive Plan adopted in the third fiscal quarter of Fiscal 2012 and amended and restated with shareholder approval in May 2015 and again in June 2020 (the “Incentive Plan”). The 2008 Plan only provided for grants of share options and was authorized to issue up to 23,980,823 ordinary shares. As of June 26, 2021, there were no shares available to grant equity awards under the 2008 Plan. The Incentive Plan allows for grants of share options, restricted shares and RSUs, and other equity awards, and authorizes a total issuance of up to 18,846,000 ordinary shares after amendments in June 2020. At June 26, 2021, there were 4,064,983 ordinary shares available for future grants of equity awards under the Incentive Plan. Option grants issued from the 2008 Plan generally expire ten years from the date of the grant, and those issued under the Incentive Plan generally expire seven years from the date of the grant.
The following table summarizes the Company’s share-based compensation activity during the three months ended June 26, 2021:
 OptionsService-Based RSUsPerformance-Based RSUs
Outstanding/Unvested at March 27, 2021
1,150,260 4,895,517 581,659 
Granted— 1,314,010 — 
Exercised/Vested(160,388)(1,596,352)(347,561)
Change due to performance condition — — 26,109 
Canceled/Forfeited(345,546)(60,727)— 
Outstanding/Unvested at June 26, 2021
644,326 4,552,448 260,207 
The weighted average grant date fair value of service-based RSUs granted during the three months ended June 26, 2021 was $54.67. The weighted average grant date fair value of service-based RSUs granted during the three months ended June 27, 2020 was $16.24.
Share-Based Compensation Expense
The following table summarizes compensation expense attributable to share-based compensation for the three months ended June 26, 2021 and June 27, 2020 (in millions):
Three Months Ended
June 26,
2021
June 27,
2020
Share-based compensation expense$36 $24 
Tax benefit related to share-based compensation expense
$$
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates forfeitures based on its historical forfeiture rates. The estimated value of future forfeitures for equity grants as of June 26, 2021 is approximately $16 million.
See Note 17 in the Company’s Fiscal 2021 Annual Report on Form 10-K for additional information relating to the Company’s share-based compensation awards.
v3.21.2
Income Taxes
3 Months Ended
Jun. 26, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income TaxesThe Company’s effective tax rate for the three months ended June 26, 2021 was 14.5%. Such rates differs from the United Kingdom (“U.K.”) federal statutory rate of 19% primarily due to the favorable impact of global financing activities, and the impact of the variation of the proportionate geographical mix of earnings, particularly jurisdictions for which a valuation allowance is maintained. The favorable impacts are partially offset by the impact of the tax rate change in the United Kingdom on the Company's net deferred tax liabilities recorded for the three months ended June 26, 2021. The global financing activities are related to the Company’s 2014 move of its principal executive office from Hong Kong to the U.K. and decision to become a U.K. tax resident. In connection with this decision, the Company funded its international growth strategy through intercompany debt financing arrangements. These debt financing arrangements reside between certain of our U.S., U.K. and Hungarian subsidiaries. Due to the difference in the statutory income tax rates between these jurisdictions, the Company realizes a lower effective tax rate.
v3.21.2
Segment Information
3 Months Ended
Jun. 26, 2021
Segment Reporting [Abstract]  
Segment Information Segment InformationThe Company operates its business through three operating segments—Versace, Jimmy Choo and Michael Kors, which are based on its business activities and organization. The reportable segments are segments of the Company for which separate financial information is available and for which operating results are evaluated regularly by the Company’s chief operating decision maker ("CODM") in deciding how to allocate resources, as well as in assessing performance. The primary key performance indicators are revenue and operating income for each segment. The Company’s reportable segments represent components of the business that offer similar merchandise, customer experience and sales/marketing strategies.
The Company’s three reportable segments are as follows:
Versace — segment includes revenue generated through the sale of Versace luxury ready-to-wear, accessories and footwear through directly operated Versace boutiques throughout North America (United States and Canada), certain parts of EMEA and certain parts of Asia, as well as through Versace outlet stores and e-commerce sites. In addition, revenue is generated through wholesale sales to distribution partners (including geographic licensing arrangements that allow third parties to use the Versace trademarks in connection with retail and/or wholesale sales of Versace branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide, as well as through product license agreements in connection with the manufacturing and sale of jeans, fragrances, watches, jewelry, eyewear and home furnishings.
Jimmy Choo — segment includes revenue generated through the sale of Jimmy Choo luxury footwear, handbags and small leather goods and accessories through directly operated Jimmy Choo retail and outlet stores throughout the Americas, certain parts of EMEA and certain parts of Asia, through its e-commerce sites, as well as through wholesale sales of luxury goods to distribution partners (including geographic licensing arrangements that allow third parties to use the Jimmy Choo trademarks in connection with retail and/or wholesale sales of Jimmy Choo branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide. In addition, revenue is generated through product licensing agreements, which allow third parties to use the Jimmy Choo brand name and trademarks in connection with the manufacturing and sale of fragrances and eyewear.
Michael Kors — segment includes revenue generated through the sale of Michael Kors products through four primary Michael Kors retail store formats: “Collection” stores, “Lifestyle” stores (including concessions), outlet stores and e-commerce sites, through which the Company sells Michael Kors products, as well as licensed products bearing the Michael Kors name, directly to consumers throughout the Americas, certain parts of EMEA and certain parts of Asia. The Company also sells Michael Kors products directly to department stores, primarily located across the Americas and Europe, to specialty stores and travel retail shops, and to its geographic licensees. In addition, revenue is generated through product and geographic licensing arrangements, which allow third parties to use the Michael Kors brand name and trademarks in connection with the manufacturing and sale of products, including watches, jewelry, fragrances and eyewear.
In addition to these reportable segments, the Company has certain corporate costs that are not directly attributable to its brands and, therefore, are not allocated to its segments. Such costs primarily include certain administrative, corporate occupancy, shared service and information systems expenses, including enterprise resource planning system implementation costs. In addition, certain other costs are not allocated to segments, including restructuring and other charges (including transition costs related to the Company’s acquisitions), impairment costs and COVID-19 related charges. The segment structure is consistent with how the Company’s CODM plans and allocates resources, manages the business and assesses performance. All intercompany revenues are eliminated in consolidation and are not reviewed when evaluating segment performance.
The following table presents the key performance information of the Company’s reportable segments (in millions):
 Three Months Ended
 June 26,
2021
June 27,
2020
Total revenue:
Versace$240 $93 
Jimmy Choo142 51 
Michael Kors871 307 
Total revenue$1,253 $451 
Income (loss) from operations:
Versace$48 $(41)
Jimmy Choo11 (29)
Michael Kors240 (48)
Total segment income (loss) from operations299 (118)
Less: Corporate expenses
(41)(31)
Restructuring and other charges(3)(8)
COVID-19 related charges(5)
Total income (loss) from operations$258 $(162)

Depreciation and amortization expense for each segment are as follows (in millions):
 Three Months Ended
 June 26,
2021
June 27,
2020
Depreciation and amortization:
Versace$14 $13 
Jimmy Choo
Michael Kors29 34 
Total depreciation and amortization$50 $54 

Total revenue (based on country of origin) by geographic location are as follows (in millions):
 Three Months Ended
 June 26,
2021
June 27,
2020
Revenue:
The Americas (U.S., Canada and Latin America) (1)
$715 $177 
EMEA302 122 
Asia236 152 
Total revenue$1,253 $451 
(1)Total revenue earned in the U.S. was $671 million and $161 million for the three months ended June 26, 2021 and June 27, 2020, respectively.
v3.21.2
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Jun. 26, 2021
Accounting Policies [Abstract]  
Consolidation The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned or controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The interim consolidated financial statements as of June 26, 2021 and for the three months ended June 26, 2021 and June 27, 2020 are unaudited. The Company consolidates the results of its Versace business on a one-month lag, as consistent with prior periods. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation in conformity with U.S. GAAP. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended March 27, 2021, as filed with the Securities and Exchange Commission on May 26, 2021, in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full fiscal year.
Fiscal Period The Company utilizes a 52 to 53-week fiscal year and the term “Fiscal Year” or “Fiscal” refers to that 52-week or 53-week period. The results for the three months ended June 26, 2021 and June 27, 2020 are based on 13-week periods. The Company’s Fiscal Year 2022 is a 53-week period ending April 2, 2022.
Use of Estimates The preparation of financial statements in accordance with U.S. GAAP requires management to use judgment and make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. The most significant assumptions and estimates involved in preparing the financial statements include allowances for customer deductions, sales returns, sales discounts and credit losses, estimates of inventory net realizable value, the valuation of share-based compensation, the valuation of deferred taxes and the valuation of goodwill, intangible assets, operating lease right-of-use assets and property and equipment, along with the estimated useful lives assigned to these assets. Actual results could differ from those estimates.
Seasonality The Company experiences certain effects of seasonality with respect to its business.
COVID-19 Related Government Assistance and Subsidies As there is no definitive guidance under U.S. GAAP, the Company has applied the guidance under International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance ("IAS 20"). The Company has elected to follow the income approach under IAS 20 and recognize these funds as a reduction to the related expense in the Company’s consolidated statements of operations and comprehensive income (loss).
Inventories, net
Inventories primarily consist of finished goods with the exception of raw materials and work in process inventory. The combined total of raw materials and work in process inventory recorded on the Company’s consolidated balance sheets was $25 million and $28 million as of June 26, 2021 and March 27, 2021, respectively.
The net realizable value of the Company’s inventory as of June 26, 2021 and March 27, 2021 includes the adverse impacts associated with the COVID-19 pandemic. This includes the impact from temporary retail store closures, wholesale customer store closures, reductions in retail store traffic, a decline in international tourism and a decrease in consumer consumption.
Derivative Financial Instruments
Forward Foreign Currency Exchange Contracts
The Company uses forward foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to these transactions. The Company employs these contracts to hedge the Company’s cash flows, as they relate to foreign currency transactions. Certain of these contracts are designated as hedges for accounting purposes, while others remain undesignated. All of the Company’s derivative instruments are recorded in the Company’s consolidated balance sheets at fair value on a gross basis, regardless of their hedge designation.
The Company designates certain contracts related to the purchase of inventory that qualify for hedge accounting as cash flow hedges. Formal hedge documentation is prepared for all derivative instruments designated as hedges, including 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 loss (gain) in the Company’s consolidated statements of operations and comprehensive income (loss). The Company classifies cash flows relating to its forward foreign currency exchange contracts related to purchase of inventory consistently with the classification of the hedged item, within cash flows from operating activities.
The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based upon their credit ratings and certain other financial factors, adhering to established limits for credit exposure. The aforementioned forward contracts generally have a term of no more than 12 months. The period of these contracts is directly related to the foreign transaction they are intended to hedge.
Net Investment Hedges
The Company also uses fixed-to-fixed cross currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between its U.S. Dollars and these foreign currencies. The Company has elected the spot method of designating these contracts under ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”, and has 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 the Company’s consolidated balance sheets. Interest accruals and coupon payments are recognized directly in interest expense in the Company’s 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.
Interest Rate Swap Agreements
The Company also uses interest rate swap agreements to hedge the variability of its cash flows resulting from floating interest rates on the Company’s borrowings. When an interest rate swap agreement qualifies for hedge accounting as a cash flow hedge, the changes in the fair value are recorded in equity as a component of accumulated other comprehensive income and are reclassified into interest expense in the same period during which the hedged transactions affect earnings.
Leases
The Company leases retail stores, office space and warehouse space under operating lease agreements that expire at various dates through September 2043. The Company’s leases generally have terms of up to 10 years, generally require a fixed annual rent and may require the payment of additional rent if store sales exceed a negotiated amount. Although most of the Company’s equipment is owned, the Company has limited equipment leases that expire on various dates through May 2025. The Company acts as sublessor in certain leasing arrangements, primarily related to closed stores under its restructuring activities, as discussed in Note 8. Fixed sublease payments received are recognized on a straight-line basis over the sublease term. The Company determines the sublease term based on the date it provides possession to the subtenant through the expiration date of the sublease.

The Company recognizes operating lease right-of-use assets and lease liabilities at lease commencement date, based on the present value of fixed lease payments over the expected lease term. The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company’s leases. The Company’s incremental borrowing rates are based on the term of the leases, the economic environment of the leases and reflect the expected interest rate it would incur to borrow on a secured basis. Certain leases include one or more renewal options. The exercise of lease renewal options is generally at the Company’s sole discretion and as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company generally does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the operating lease right-of-use asset and lease liability. Certain leases also contain termination options with an associated penalty. Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term. The Company recognizes operating lease expense on a straight-line basis over the lease term.

Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for its short-term leases on a straight-line basis over the lease term.

The Company’s leases generally provide for payments of non-lease components, such as common area maintenance, real estate taxes and other costs associated with the leased property. The Company accounts for lease and non-lease components of its real estate leases together as a single lease component and, as such, includes fixed payments of non-lease components in the measurement of the operating lease right-of-use assets and lease liabilities for its real estate leases. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet. The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.
Net Income (Loss) per Share The Company’s basic net income (loss) per ordinary share is calculated by dividing net income by the weighted average number of ordinary shares outstanding during the period. Diluted net income (loss) per ordinary share reflects the potential dilution that would occur if share option grants or any other potentially dilutive instruments, including restricted shares and restricted share units ("RSUs"), were exercised or converted into ordinary shares. These potentially dilutive securities are included in diluted shares to the extent they are dilutive under the treasury stock method for the applicable periods. Performance-based RSUs are included as diluted shares if the related performance conditions are considered satisfied as of the end of the reporting period and to the extent they are dilutive under the treasury stock method.
Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements
The Company has considered all new accounting pronouncements and, other than the recent pronouncement discussed below, have concluded that there are no new pronouncements that may have a material impact on the Company’s results of operations, financial condition or cash flows based on current information.
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and in January 2021, issued ASU 2021-01, "Reference Rate Reform: Scope". Both of these updates aim to ease the potential burden in accounting for reference rate reform. These updates provide optional expedients and exceptions, if certain criteria are met, for applying accounting principles generally accepted in the United States to contract modifications, hedging relationships and other transactions affected by the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The amendments were effective upon issuance and allow companies to adopt the amendments on a prospective basis through December 31, 2022. The Company is currently evaluating the impact of these updates on its consolidated financial statements.
Revenue Recognition
The Company accounts for contracts with its customers when there is approval and commitment from both parties, the rights of the parties and payment terms have been identified, the contract has commercial substance and collectibility of consideration is probable. Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services.
The Company sells its products through three primary channels of distribution: retail, wholesale and licensing. Within the retail and wholesale channels, substantially all of the Company’s revenues consist of sales of products that represent a single performance obligation, where control transfers at a point in time to the customer. For licensing arrangements, royalty and advertising revenue is recognized over time based on access provided to the Company’s trademarks.
Retail
The Company generates sales through directly operated stores and e-commerce sites throughout the Americas (U.S., Canada and Latin America), certain parts of EMEA (Europe, Middle East and Africa) and certain parts of Asia (including Australia).
Gift Cards. The Company sells gift cards that can be redeemed for merchandise, resulting in a contract liability upon issuance. Revenue is recognized when the gift card is redeemed or upon “breakage” for the estimated portion of gift cards that are not expected to be redeemed. “Breakage” revenue is calculated under the proportional redemption methodology, which considers the historical patterns of redemption in jurisdictions where the Company is not required to remit the value of the unredeemed gift cards as unclaimed property. The contract liability related to gift cards, net of estimated “breakage”, of $12 million and $12 million as of June 26, 2021 and March 27, 2021, respectively, is included within accrued expenses and other current liabilities in the Company’s consolidated balance sheet.
Loyalty Program. The Company offers a loyalty program, which allows its Michael Kors U.S. customers to earn points on qualifying purchases toward monetary and non-monetary rewards, which may be redeemed for purchases at Michael Kors retail stores and e-commerce sites. The Company defers a portion of the initial sales transaction based on the estimated relative fair value of the benefits based on projected timing of future redemptions and historical activity. These amounts include estimated “breakage” for points that are not expected to be redeemed.
Wholesale
The Company’s products are sold primarily to major department stores, specialty stores and travel retail shops throughout the Americas, EMEA and Asia. The Company also has arrangements where its products are sold to geographic licensees in certain parts of EMEA, Asia and South America.
Licensing
The Company provides its third-party licensees with the right to access its Versace, Jimmy Choo and Michael Kors trademarks under product and geographic licensing arrangements. Under geographic licensing arrangements, third party licensees receive the right to distribute and sell products bearing the Company’s trademarks in retail and/or wholesale channels within certain geographical areas, including Brazil, the Middle East, Eastern Europe, South Africa and certain parts of Asia.
The Company recognizes royalty revenue and advertising contributions based on the percentage of sales made by the licensees. Generally, the Company’s guaranteed minimum royalty amounts due from licensees relate to contractual periods that do not exceed 12 months, however, certain guaranteed minimums for Versace are multi-year based.
Receivables, net Receivables are presented net of allowances for discounts, markdowns, operational chargebacks and credit losses. Discounts are based on open invoices where trade discounts have been extended to customers. Markdowns are based on wholesale customers’ sales performance, seasonal negotiations with customers, historical deduction trends and an evaluation of current market conditions. Operational chargebacks are based on deductions taken by customers, net of expected recoveries. Such provisions, and related recoveries, are reflected in revenues.The Company’s allowance for credit losses is determined through analysis of periodic aging of receivables and assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers and the impact of general economic conditions. The past due status of a receivable is based on its contractual terms. Amounts deemed uncollectible are written off against the allowance when it is probable the amounts will not be recovered.