Capri Holdings (CPRI) Risk Analysis

Our products are primarily produced by, and purchased or procured from, independent manufacturing contractors, and in some cases third-party sourcing agents, located mainly in Asia and Europe. A manufacturing contractor's failure to ship products to us in a timely manner or to meet the required quality standards could cause us to miss the delivery date requirements of our customers for those items. The failure to make timely deliveries may cause customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a material adverse effect on us. We do not have long-term agreements with any of our third-party manufacturing contractors or third-party sourcing agents. As a result, any single manufacturing contractor or sourcing agent could unilaterally terminate its relationship with us at any time. Our inability to promptly replace manufacturing contractors or third-party sourcing agents that terminate their relationships with us or cease to provide high quality products in a timely and cost-efficient manner could have a material adverse effect on our business, results of operations and financial condition and impact the cost and availability of our goods.

There are risks inherent to importing our products. Virtually all of our imported products are subject to duties which may impact the cost of such products. In addition, all of our products sold in the U.S. are imported from foreign countries including Vietnam, Cambodia, Indonesia and Bangladesh, where the primary manufacturers of Michael Kors products are located, and are therefore subject to changes in U.S. and international trade policies. Trade actions, including tariffs, safeguard measures, quotas, or other import restrictions, may be imposed, modified, challenged, or replaced from time to time under various legal authorities, and the scope, duration, and applicability of such measures can be unpredictable. Refunds or relief from tariffs or duties, where available, are subject to administrative review, timing delays, and changes in interpretation or enforcement, and there can be no assurance that such amounts will be recovered, or recovered in a timely manner, which could adversely affect operating income and cash flows. Countries where our products are manufactured or sold may implement retaliatory measures or impose additional restrictions in response to changes in U.S. trade policy. While we seek to mitigate the impact of trade measures through sourcing strategies, free trade agreements and other supply chain initiatives where available, increased tariffs or other trade restrictions or uncertainty regarding their application, could limit our ability to manufacture products in countries that have the labor and technical expertise needed and we may not be able to find alternative sourcing options in a timely manner or at all. Such measures may also force us to increase prices, absorb higher costs, or adjust sourcing arrangements, any of which could materially adversely affect our revenue, profitability, results of operations or financial condition. Following the U.S. Supreme Court's February 2026 decision which held that tariffs imposed under IEEPA were unlawful, we are entitled to a refund of approximately $65 million in IEEPA tariffs previously paid to U.S. Customs and Border Protection. As of March 28, 2026, we intended to recover all the IEEPA Tariffs previously paid and has recorded an IEEPA Tariff refund receivable of $65 million. We have refund claims with CBP and expect to recover the full amount, though actual timing and amounts are subject to completion of CBP's refund process and involve inherent risks, including delays in government processing, administrative offsets, appeals of court orders directing refunds, or changes in law or policy affecting the refund process. In addition, in response to the U.S. Supreme Court's decision, the U.S. President issued an executive order imposing tariffs pursuant to Section 122 of the Trade Act of 1974 for 150 days, effective on February 24, 2026. The outlook on further trade policy actions is unclear, and these actions have led to significant volatility and uncertainty in global markets. Uncertainty regarding the scope, duration and administration of trade measures, including the timing and recoverability of tariff refunds or relief where applicable, has in the past contributed to, and may in the future continue to contribute to, variability in costs and cash flows. We are also subject to risks related to compliance with existing and evolving laws, regulations and enforcement actions related to forced labor, human rights, and supply chain transparency. Compliance with such requirements often requires extensive due diligence, documentation and traceability across multiple tiers of our supply chain, including suppliers over whom we have limited visibility or control. CBP has intensified enforcement of import laws including with respect to withhold release orders and seizures or detainments of shipments where it believes that goods may have been produced, wholly or in part, with forced labor or other prohibited labor practices. The failure by us or our suppliers to meet applicable requirements could result in shipment delays, detentions, exclusions or seizures, supply chain disruptions, increased costs, loss of inventory, potential penalties or reputational harm, any of which could materially affect product availability, revenue or margins or otherwise materially adversely affect our business, results of operations or financial condition.

We do not own any of our retail store facilities, but instead lease all of our stores under operating leases. Our leases generally have terms of up to 10 years, generally require a fixed annual base rent and some require the payment of additional percentage rent if store sales exceed a negotiated amount. Certain of our European stores also require initial investments in the form of key money to secure prime locations, which may be paid to landlords or existing lessees. Generally, our leases are "net" leases, which require us to pay all of the costs of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases or withhold payments at our option, and payments under these operating leases account for a significant portion of our operating costs. For example, as of March 28, 2026, we were party to operating leases associated with our retail stores that we operate directly throughout the globe, as well as other global corporate facilities, requiring future minimum lease payments aggregating to $949 million through Fiscal 2031 and approximately $318 million thereafter through Fiscal 2044. Our substantial operating lease obligations could have a material adverse effect on our business, results of operations and financial condition. In certain cases, as we have done in the past, we may determine that it is no longer economical to operate a retail store subject to a lease or we may seek to generally downsize, consolidate, reposition, relocate or close some of our real estate locations. In such cases, we may be required to negotiate a lease exit with the applicable landlord or remain obligated under the applicable lease for, among other things, payment of the base rent for the balance of the lease term. In some instances, we may be unable to close an underperforming retail store due to continuous operation clauses in our lease agreements. In addition, a significant portion of our leases may expire within a short time frame. As each of our leases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close retail stores in desirable locations and/or may impact future revenue. Our inability to secure desirable retail space, favorable lease terms or to renew our leases could impact our ability to grow. Likewise, our obligation to continue making lease payments with respect to leases for closed retail spaces could have a material adverse effect on our business, financial condition and results of operations. Additionally, due to the volatile economic environment, it may be difficult to determine the fair market value of real estate properties when we are deciding whether to enter into leases or renew expiring leases. This may impact our ability to manage the profitability of our store locations, or cause impairments of our operating lease right-of-use assets if market values decline, any of which could have a material adverse effect on our financial condition or results of operations.