Revenue Recognition

9 Months Ended

Dec. 28, 2019

Revenue from Contract with Customer [Abstract]

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 collectability of consideration is probable. Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those 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 brands.

Retail

The Company generates sales through directly operated stores and e-commerce throughout the Americas (U.S., Canada and Latin America), EMEA (Europe, Middle East and Africa) and certain parts of Asia.

Gift Cards. The Company sells gift cards that can be redeemed for merchandise, resulting in a contract liability recorded 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,” was $13 million as of both December 28, 2019 and March 30, 2019, respectively, and is included in 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 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. The contract liability, net of an estimated “breakage,” of $4 million and $3 million as of December 28, 2019 and March 30, 2019, respectively, is recorded as a reduction to revenue in the consolidated statements of operations and comprehensive income and within accrued expenses and other current liabilities in the Company’s consolidated balance sheet and is expected to be recognized within the next 12 months.

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, certain parts of Asia and Australia.

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, some of our guaranteed minimums for Versace are multi-year based. As of December 28, 2019, contractually guaranteed minimum fees from our license agreements expected to be recognized as revenue during future periods were as follows (in millions):


	Contractually Guaranteed Minimum Fees

Remainder of Fiscal 2020	$	7
Fiscal 2021	27
Fiscal 2022	27
Fiscal 2023	23
Fiscal 2024	21
Fiscal 2025 and thereafter	100
Total	$	205

Sales Returns

The refund liability recorded as of December 28, 2019 and March 30, 2019 was $51 million and $35 million, respectively, and the related asset for the right to recover returned product as of December 28, 2019 and March 30, 2019 was $16 million and $12 million, respectively.

Contract Balances

Total contract liabilities were $19 million and $31 million as of December 28, 2019 and March 30, 2019, respectively. For the three and nine months ended December 28, 2019, the Company recognized $2 million and $19 million, respectively, in revenue which related to contract liabilities that existed at March 30, 2019. For the three and nine months ended December 29, 2018, the Company recognized $3 million and $14 million, respectively, in revenue which related to contract liabilities that existed at April 1, 2018. There were no contract assets recorded as of December 28, 2019 and March 30, 2019.

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 revenues disaggregated by geographic location (in millions):


	Three Months Ended						Nine Months Ended
	December 28, 2019		December 29, 2018		December 28, 2019		December 29, 2018
Versace revenue - the Americas	$	41	$	—	$	133	$	—
Versace revenue - EMEA	98		—		311		—
Versace revenue - Asia	56		—		186		—
Total Versace	195		—		630		—

Jimmy Choo revenue - the Americas	34		29		85		75
Jimmy Choo revenue - EMEA	85		90		228		248
Jimmy Choo revenue - Asia	46		43		135		128
Total Jimmy Choo	165		162		448		451

Michael Kors revenue - the Americas	834		898		2,222		2,363
Michael Kors revenue - EMEA	239		244		652		677
Michael Kors revenue - Asia	138		134		407		403
Total Michael Kors	1,211		1,276		3,281		3,443

Total revenue - the Americas	909		927		2,440		2,438
Total revenue - EMEA	422		334		1,191		925
Total revenue - Asia	240		177		728		531
Total revenue	$	1,571	$	1,438	$	4,359	$	3,894

See Note 3 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2019 for a complete disclosure of the Company’s revenue recognition policy.