10-Q: Capri Holdings Reports Q2 Loss, Revenue Declines Amid Versace Sale

Capri Holdings reported a net loss for the second fiscal quarter and a significant decline in net income from continuing operations for the six months ended September 27, 2025, as revenue decreased across its Michael Kors and Jimmy Choo brands.

Summary

• Capri Holdings reported a net loss of $28 million for the three months ended September 27, 2025, compared to a net income of $23 million in the prior year period.
• Net income from continuing operations for the six months ended September 27, 2025, was $22 million, a decrease of 53.2% from $47 million in the same period last year.
• Total revenue for continuing operations decreased by 2.5% to $856 million for the three months, and by 4.2% to $1.653 billion for the six months, primarily due to declines in Michael Kors and Jimmy Choo.
• Michael Kors revenue decreased 1.8% (3.3% constant currency) to $725 million for the quarter and 3.8% (5.2% constant currency) to $1.360 billion for the six months.
• Jimmy Choo revenue decreased 6.4% (9.3% constant currency) to $131 million for the quarter and 6.4% (9.3% constant currency) to $293 million for the six months.
• The Versace business has been classified as discontinued operations following the April 10, 2025, agreement to sell it to Prada S.p.A. for $1.375 billion in cash.
• Net income from discontinued operations (Versace) was $6 million for the quarter and $3 million for the six months, a significant improvement from losses of $19 million and $36 million, respectively, in the prior year periods.
• Operating loss from continuing operations increased to $12 million for the quarter from $6 million, while operating income for the six months decreased to $4 million from $5 million.
• Shareholders' equity turned negative, standing at $(70) million as of September 27, 2025, down from $372 million at March 29, 2025.
• The company's Global Optimization Plan concluded as of September 27, 2025, resulting in the closure of 15 retail stores during the quarter and 30 stores during the six months, with net restructuring charges of $2 million and $3 million, respectively.
• A new three-year share repurchase program of up to $1.0 billion was approved on November 4, 2025, expected to begin in Fiscal 2027.

Sentiment

Score: 3

Explanation: The sentiment is largely negative due to significant declines in revenue and net income from continuing operations, a shift to a net loss for the quarter, and negative shareholders' equity. While the Versace sale provides a substantial cash inflow and a new share repurchase program is planned, the underlying operational performance of the core brands (Michael Kors and Jimmy Choo) is weak, and macroeconomic headwinds persist. The increase in debt and negative operating cash flow are also concerning.

Positives

• Jimmy Choo's gross profit margin increased by 160 basis points to 70.2% for the quarter and by 260 basis points to 70.3% for the six months, driven by favorable channel mix and higher full-price sell-throughs.
• Corporate selling, general and administrative expenses decreased by $12 million (20.0%) for the quarter and $29 million (23.8%) for the six months, primarily due to reduced professional fees and the absence of prior-year transaction-related costs.
• Net income from discontinued operations (Versace) improved significantly to $6 million for the quarter and $3 million for the six months, compared to losses in the prior year.
• Interest income, net, improved by $7 million for the quarter and $21 million for the six months, primarily due to higher interest income from net investment hedges and lower effective interest rates on outstanding debt.
• A new three-year share repurchase program of up to $1.0 billion was approved, signaling confidence in future capital allocation, expected to begin in Fiscal 2027.

Negatives

• Total revenue for continuing operations decreased by 2.5% to $856 million for the quarter and 4.2% to $1.653 billion for the six months, indicating a slowdown in demand.
• Michael Kors revenue declined by 1.8% (3.3% constant currency) for the quarter and 3.8% (5.2% constant currency) for the six months, attributed to underperforming strategic initiatives and decreased promotions.
• Jimmy Choo revenue declined by 6.4% (9.3% constant currency) for the quarter and 6.4% (9.3% constant currency) for the six months, due to a continued slowdown in demand for fashion luxury goods, particularly in EMEA and Asia.
• Gross profit margin for Michael Kors decreased by 180 basis points for the quarter and 150 basis points for the six months, primarily due to unfavorable U.S. import tariffs and lower initial markups from a new pricing strategy.
• Operating loss from continuing operations increased to $12 million for the quarter from $6 million in the prior year, and operating income for the six months decreased by 20.0% to $4 million.
• Net loss from continuing operations was $34 million for the quarter, a significant reversal from net income of $42 million in the prior year.
• Net income from continuing operations for the six months decreased by 53.2% to $22 million.
• Shareholders' equity became negative at $(70) million as of September 27, 2025, a substantial decline from $372 million at March 29, 2025.
• Net cash used in operating activities for continuing operations was $13 million for the six months, a significant decrease from $138 million provided in the prior year, mainly due to timing of payments and lower net income.
• Total debt increased to $1.769 billion as of September 27, 2025, from $1.496 billion at March 29, 2025, primarily due to higher net debt borrowings.
• The company recorded an incremental net valuation allowance of $40 million for income taxes in the quarter, impacting the effective tax rate.

Risks

• Macroeconomic pressures and general uncertainty regarding the overall future economic environment.
• Imposition or threat of new or additional duties, tariffs, or trade restrictions on product importation, such as the U.S. tariffs on imports from Vietnam, Cambodia, Indonesia, and Bangladesh.
• Changes in fashion, consumer traffic, and retail trends.
• Fluctuations in demand for products.
• Loss of market share and increased competition.
• Risks associated with operating in international markets and global sourcing activities, including currency fluctuations, disruptions, or delays in manufacturing or shipments.
• Departure of key employees or failure to attract and retain highly qualified personnel.
• Levels of cash flow and future availability of credit.
• Ability to successfully execute growth strategies or cost reduction measures.
• The risk of cybersecurity threats and privacy or data security breaches.
• Reductions in the wholesale channel.
• High consumer debt levels, recession, and inflationary pressures.
• Impact of epidemics, pandemics, disasters, or catastrophes.
• Extreme weather conditions and natural disasters.
• Acts of war and other geopolitical conflicts.
• Litigation relating to the previously proposed merger with Tapestry, Inc., its termination, and/or public disclosures related thereto, which could result in substantial liability.

Future Outlook

The company anticipates receiving $1.375 billion in cash from the sale of the Versace business in the second half of calendar 2025. Capital expenditures for Fiscal 2026 are expected to be approximately $110 million, focusing on Michael Kors and Jimmy Choo store renovations, IT, and digital enhancements. A new $1.0 billion share repurchase program is approved, expected to commence in Fiscal 2027. The company continues to expect volatility in global foreign currency exchange rates and acknowledges ongoing macroeconomic uncertainty, inflationary pressures, and geopolitical factors impacting the luxury market.

Management Comments

• Management noted that certain strategic initiatives previously implemented at Michael Kors did not perform as expected, contributing to revenue decline.
• Management highlighted cost savings initiatives which resulted in lower personnel expenses and retail store related costs for Michael Kors.
• Management attributed the increase in Jimmy Choo's selling, general and administrative expenses to increased marketing efforts, partially offset by cost savings in retail store related costs.
• Management stated that the Global Optimization Plan, which concluded as of September 27, 2025, was designed to streamline the operating model, maximize efficiency, and support long-term profitable growth.

Industry Context

The luxury accessories, footwear, and apparel industry is currently facing global economic conditions characterized by inflation, political instability, and macroeconomic uncertainty. These factors are leading to lower disposable income and reduced consumer spending on discretionary luxury items. The slowdown in demand for certain categories of fashion luxury goods, particularly in EMEA and Asia, is impacting brands like Jimmy Choo. Additionally, U.S. import tariffs on products from key manufacturing countries like Vietnam, Cambodia, Indonesia, and Bangladesh are unfavorably impacting gross profit margins for brands like Michael Kors.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Two putative class action complaints were filed in the U.S. District Court for the District of Delaware against Capri, Tapestry, and certain officers, alleging violations of federal securities laws related to statements concerning the terminated Tapestry merger and the FTC's action to block it. The lead plaintiff filed an Amended Federal Securities Law Complaint on May 15, 2025, seeking claims on behalf of persons who purchased Capri stock and sold Capri puts between August 10, 2023, and October 24, 2024. The company may incur substantial defense costs, and an unfavorable judgment could result in significant liability.

Stakeholder Impact

• Shareholders: Negative impact due to significant decline in net income, a quarterly net loss, and negative shareholders' equity. Litigation related to the terminated Tapestry merger poses additional financial risk.
• Employees: Impacted by the Global Optimization Plan, which included store closures and severance costs, indicating potential job reductions.
• Customers: Michael Kors' strategic initiatives did not perform as expected, potentially affecting customer experience or brand perception. Jimmy Choo experienced a slowdown in demand for luxury goods.
• Creditors: Increased long-term debt and negative shareholders' equity could raise concerns, although the company states it is in compliance with debt covenants and expects a significant cash inflow from the Versace sale.

Next Steps

• Closing of the sale of the Versace business to Prada S.p.A. in the second half of calendar 2025.
• Implementation of the new three-year share repurchase program of up to $1.0 billion, expected to begin in Fiscal 2027.
• Continued capital expenditures of approximately $110 million in Fiscal 2026 for Michael Kors and Jimmy Choo store renovations, IT, and digital enhancements.
• Monitoring the impact of new accounting pronouncements, ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement/Comprehensive Income/Expense Disaggregation Disclosures), on future financial statements and disclosures.

Key Dates

Recommendation

While Capri Holdings faces significant headwinds, including declining revenue in its core brands, a quarterly net loss, and negative shareholders' equity, the impending $1.375 billion cash inflow from the Versace sale and the approval of a new $1.0 billion share repurchase program provide a substantial liquidity boost and potential for capital return. The Global Optimization Plan's conclusion and corporate cost savings are positive steps. However, the underlying operational challenges, macroeconomic pressures, and ongoing litigation create considerable uncertainty. A 'hold' recommendation is appropriate, acknowledging both the severe operational challenges and the strategic financial maneuvers that could stabilize the company, but advising caution until a clear turnaround in core brand performance is evident.

Keywords

Luxury fashion, Michael Kors, Jimmy Choo, Versace, SEC filing, Quarterly report, Financial results, Revenue decline, Net loss, Discontinued operations, Prada acquisition, Tapestry merger termination, Debt, Share repurchase, Retail stores, Tariffs, Global Optimization Plan