10-Q: Capri Holdings Navigates Post-Versace Sale, Reports Mixed Q3

Capri Holdings reports increased net income for the quarter ended December 27, 2025, driven by the Versace sale and cost savings, despite revenue declines in its continuing Michael Kors and Jimmy Choo segments.

Summary

• Net income attributable to Capri significantly increased to $116 million for the three months ended December 27, 2025, compared to a net loss of $547 million in the prior year.
• Net income from continuing operations rose to $57 million for the three months ended December 27, 2025, up from $6 million in the comparable prior year period.
• Total revenue decreased by 4.0% to $1.025 billion for the three months ended December 27, 2025, compared to $1.068 billion in the prior year, with a 5.9% decrease on a constant currency basis.
• Michael Kors revenue declined by 5.6% (7.3% constant currency) to $858 million for the quarter, primarily due to underperforming strategic initiatives and decreased promotional activity.
• Jimmy Choo revenue increased by 5.0% (1.9% constant currency) to $167 million for the quarter, driven by higher revenue in the Americas.
• Gross profit decreased by 7.6% to $623 million for the quarter, with the gross profit margin falling to 60.8% from 63.1% in the prior year, largely due to increased U.S. import tariffs impacting Michael Kors.
• The company completed the sale of its Versace business to Prada S.p.A. on December 2, 2025, for gross cash proceeds of $1.395 billion, recognizing a preliminary gain on sale of $45 million.
• A new three-year share repurchase program of up to $1.0 billion was approved on November 4, 2025, with implementation expected to begin in Fiscal 2027.
• The Global Optimization Plan, aimed at streamlining operations and maximizing efficiency, concluded as of September 27, 2025, incurring $12 million in restructuring expense for the quarter.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a moderately positive report, primarily due to the significant improvement in net income and the successful divestiture of Versace, which strengthens the balance sheet and allows for a new share repurchase program. However, revenue declines in Michael Kors and ongoing macroeconomic headwinds temper the overall sentiment.

Positives

• Net income attributable to Capri significantly improved to $116 million for the three months ended December 27, 2025, compared to a net loss of $547 million in the prior year.
• Net income from continuing operations increased to $57 million for the three months ended December 27, 2025, from $6 million in the prior year.
• Jimmy Choo segment reported positive income from operations of $3 million for the quarter, a notable improvement from a $6 million loss in the prior year.
• Total operating expenses decreased by 11.0% to $577 million for the quarter, contributing to improved profitability.
• The successful sale of the Versace business generated $1.395 billion in gross cash proceeds and a preliminary gain on sale of $45 million, significantly improving the balance sheet and liquidity.
• A new $1.0 billion share repurchase program was approved, signaling confidence and potential shareholder returns.
• Cost savings initiatives at Michael Kors led to lower retail store related costs and personnel expenses.
• Jimmy Choo's gross profit margin increased by 50 basis points due to higher full-price sell-throughs.
• Improved interest income, net, primarily due to lower average borrowings and higher interest income from net investment hedges.
• The Global Optimization Plan concluded, potentially reducing future restructuring charges.

Negatives

• Total revenue decreased by 4.0% (5.9% constant currency) to $1.025 billion for the three months ended December 27, 2025.
• Michael Kors revenue decreased by 5.6% (7.3% constant currency) for the quarter, attributed to underperforming strategic initiatives and decreased promotional activity.
• Michael Kors gross profit decreased by 10.0% for the quarter, with a 290 basis point decrease in gross profit margin due to the unfavorable impact of increased U.S. import tariffs.
• Michael Kors operating income decreased by 19.0% for the quarter.
• Overall gross profit margin declined to 60.8% from 63.1% year-over-year for the quarter.
• Jimmy Choo revenue decreased by 2.5% (5.5% constant currency) for the nine months ended December 27, 2025, primarily due to a continued slowdown in demand for certain categories of fashion luxury goods, particularly in Asia.
• An incremental allowance for credit losses of approximately $11 million was recorded in the current year due to a wholesale customer filing for Chapter 11 bankruptcy.

Risks

• Macroeconomic pressures and general uncertainty regarding the overall future economic environment, including inflation and geopolitical instability, could negatively affect consumer spending on luxury items.
• The imposition or threat of new or additional duties, tariffs, or trade restrictions on the importation of products could materially impact revenue and profitability.
• Changes in fashion, consumer traffic, and retail trends, as well as fluctuations in demand for products, could lead to loss of market share and increased competition.
• Operating in international markets and global sourcing activities expose the company to risks such as currency fluctuations, disruptions or delays in manufacturing or shipments.
• The departure of key employees or failure to attract and retain highly qualified personnel could adversely affect business operations.
• Levels of cash flow and future availability of credit are critical for funding ongoing operations and strategic initiatives.
• The company's ability to successfully execute its growth strategies or cost reduction measures is subject to various uncertainties.
• Cybersecurity threats and privacy or data security breaches pose risks to operations and customer trust.
• Reductions in the wholesale channel could negatively impact revenue.
• High consumer debt levels, recession, and inflationary pressures, along with general economic, political, business, or market conditions, could reduce discretionary spending.
• The impact of epidemics, pandemics, disasters, catastrophes, extreme weather conditions, natural disasters, acts of war, and other geopolitical conflicts could disrupt operations.
• Litigation relating to the previously proposed merger with Tapestry, Inc., its termination, and/or public disclosures related thereto could result in substantial costs and liability.
• Exposure to the risk that counterparties to derivative contracts will fail to meet their contractual obligations.

Future Outlook

The company expects to spend approximately $100 million in Fiscal 2026 on capital expenditures, focusing on store renovations, information technology, and digital enhancements. A new $1.0 billion share repurchase program is anticipated to commence implementation in Fiscal 2027. The company is currently assessing the impact of new accounting pronouncements related to income taxes (ASU 2023-09) for its Fiscal 2026 annual statements and comprehensive income/expense disclosures (ASU 2024-03) for periods beginning after December 15, 2026. Volatility in global foreign currency exchange rates is expected to continue, potentially impacting reported results of non-U.S. subsidiaries, and ongoing disruptions in shipping, distribution, and supply chain constraints could negatively affect future operations.

Management Comments

• Our commitment to glamorous style and craftsmanship is at the heart of each of our luxury brands.
• Our strength lies in the unique DNA and heritage of each of our brands, the diversity and passion of our people and our dedication to the clients and communities we serve.
• We continue to expect volatility in the global foreign currency exchange rates, which may have a negative impact on the reported results of certain of our non-United States subsidiaries in the future, when translated to the United States dollar.
• We believe that the cash generated from our operations, together with borrowings available under our revolving credit facilities and available cash and cash equivalents, will be sufficient to meet our working capital needs for the next 12 months and beyond.
• The program [share repurchase] may be suspended or discontinued at any time.

Industry Context

StockSavvy.ai notes that the luxury accessories, footwear, and apparel industry faces ongoing challenges from global macroeconomic conditions, inflation, and geopolitical instability, impacting consumer discretionary spending. Capri's mixed results, with Michael Kors declining and Jimmy Choo showing modest growth, reflect the uneven recovery and shifting consumer preferences within the luxury market. The successful divestiture of Versace allows Capri to streamline its portfolio and focus on its core Michael Kors and Jimmy Choo brands, a common strategy in a competitive and consolidating luxury sector.

Corporate Governance

Legal Proceedings

• Two putative class action complaints were filed on December 23, 2024, and January 28, 2025, in the U.S. District Court for the District of Delaware against Capri, Tapestry, Inc., and certain officers (including John D. Idol and Thomas J. Edwards, Jr.).
• The complaints allege violations of federal securities laws based on statements concerning the previously proposed merger with Tapestry and the FTC's action to enjoin it.
• A lead plaintiff was appointed on March 7, 2025, and an Amended Federal Securities Law Complaint was filed on May 15, 2025, seeking claims on behalf of a class of persons who purchased Capri stock and sold Capri puts between August 10, 2023, and October 24, 2024.
• The company may incur substantial costs defending the Amended Federal Securities Law Complaint, and an unfavorable judgment or ruling could result in substantial liability.
• Potential liability to shareholders for federal securities claims or other matters related to the terminated merger may be covered in part by insurance policies, but adequate insurance coverage is not assured.

Stakeholder Impact

• Shareholders: Positive impact from the Versace sale proceeds, significant debt reduction, and the approval of a new $1.0 billion share repurchase program. Negative impact from the terminated Tapestry merger and associated litigation risks.
• Employees: Impacted by the Global Optimization Plan (restructuring, severance costs) and the sale of the Versace business. Krista McDonough received a retention and performance bonus.
• Customers: Potential impact from strategic initiatives at Michael Kors that 'did not perform as expected' and a decrease in promotional activity.
• Creditors: Positive impact from significant debt reduction following the Versace sale, improving the company's financial leverage and compliance with debt covenants.
• Suppliers: The supplier financing program allows inventory suppliers to sell receivables to a financial institution for earlier payment, which could be beneficial for their liquidity.

Next Steps

• Prada S.p.A. will deliver an initial closing statement for the Versace sale within 90 days of December 2, 2025, for final adjustments to cash proceeds and the gain on sale.
• The company expects to record an adjustment to the gain on sale for any difference from the estimated closing statement during the fourth quarter of Fiscal 2026.
• The new $1.0 billion share repurchase program is expected to begin implementation in Fiscal 2027.
• Approximately $100 million is expected to be spent in Fiscal 2026 on capital expenditures, including store renovations, information technology, and digital enhancements.
• The company will adopt ASU 2023-09 (Income Taxes) beginning with disclosures in its Fiscal 2026 annual consolidated financial statements.
• The company will adopt ASU 2024-03 (Reporting Comprehensive Income/Expense Disaggregation Disclosures) for annual periods beginning after December 15, 2026, with interim disclosures required for periods within annual periods beginning after December 15, 2027.
• The company will adopt ASU 2025-09 (Hedge Accounting Improvements) for annual periods beginning Fiscal 2028.

Key Dates

Recommendation

The successful divestiture of Versace and the subsequent debt reduction significantly improve Capri's financial flexibility and balance sheet health, while the new share repurchase program signals management's confidence. However, the core Michael Kors brand continues to face revenue declines and margin pressure from tariffs, and the ongoing class-action lawsuit related to the terminated Tapestry merger introduces legal uncertainty. The mixed operational performance of the continuing brands, coupled with external macroeconomic headwinds, suggests a 'Hold' recommendation as the company navigates its strategic refocus and aims for consistent growth in its remaining luxury segments.

Keywords

Luxury fashion, Michael Kors, Jimmy Choo, SEC filing, 10-Q, Financial results, Versace sale, Tapestry merger termination, Share repurchase program, Retail, Wholesale, Apparel, Footwear, Accessories, Corporate governance, Risk management, Financial reporting, Tariffs, Supply chain, Foreign currency, Global Optimization Plan