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Tapestry, Inc. (TPR - Free Report) delivered better-than-expected third-quarter fiscal 2018 results. The adjusted earnings of 54 cents a share beat the Zacks Consensus Estimate of 50 cents, thereby resulting in a positive earnings surprise of 8% and marking the 17th straight quarter of earnings beat. The quarterly earnings improved approximately 17% year over year buoyed by top-line growth.
Net sales of this New York-based company came in at $1,322.4 million, up 33% year over year. On a constant currency basis, net sales surged 30%. We noted that the total sales came ahead of the Zacks Consensus Estimate of $1,304 million, marking the second successive quarterly beat.
Tapestry is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman and Kate Spade & Company is being viewed as a significant step in its efforts toward becoming a multi-brand company. Moreover, management has undertaken transformation initiatives revolving around product, stores and marketing. Sales increase at Coach brand, contributions from recent buyouts and cost containment efforts favorably impacted the results.
These endeavors have aided the stock to rise 25% in a year compared with the industry that declined 1.2%. However, we noticed that shares are down roughly 13% during pre-market trading hours.
Stock Down: Here’s Why
The stock came under pressure following management’s remark on Stuart Weitzman results. The company highlighted that delay in production and lower sell-through of important carryover styles hurt sales and margins. Management added that some of these issues may persist through the Fall/Winter season. Analysts also pointed that dismal comparable-store sales performance at Kate Spade and overall margin contraction might have also weigh on investor sentiment.
We note that consolidated adjusted gross profit surged roughly 29% to $913 million, however, gross margin decreased 190 basis points to 69%. Further, adjusted operating income came in at $184.3 million, up 14% from the prior-year quarter figure but operating margin shrunk 240 basis points to 13.9%.
Net sales for Coach came in at $969.3 million, reflecting an increase of 6% on a reported basis and 3% on a constant currency basis. Comparable-store sales rose 3%, including a gain of about 100 basis points on account of rise in global e-commerce.
Kate Spade sales came in at $269.3 million. Comparable-store sales declined 9%, including the adverse impact of about 800 basis points from a fall in global e-commerce. Net sales for Stuart Weitzman totaled $83.8 million, reflecting an increase of 5%.
Store Update
At the end of the quarter, the company operated 405 Coach stores, 188 Kate Spade outlets and 70 Stuart Weitzman stores in North America. Internationally, the count stood at 575, 144 and 33 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry, which carries a Zacks Rank #2 (Buy), ended the quarter with cash, cash equivalents and short-term investments of $1,038.3 million, long-term debt of $1,599.5 million and shareholders' equity of $3,138 million.
FY 2018 Guidance
Management continues to expect fiscal 2018 revenue to increase approximately 30% year over year to $5.8-$5.9 billion with low-single digit organic growth and Kate Spade acquisition adding more than $1.2 billion in revenue.
Tapestry now projects operating income growth of at least 22% on the back of mid-single digit organic growth, Kate Spade buyout and estimated synergies of $45 million. Interest expense is now expected to be about $75 million.
Management now envisions earnings in the band of $2.57-$2.60, reflecting an increase of approximately 19-21%, comprising high single digit accretion from the Kate Spade buyout. The company had earlier projected earnings in the range of $2.52-$2.60 per share.
Macy's (M - Free Report) has a long-term earnings growth rate of 8.5% and a Zacks Rank #2.
Burlington Stores (BURL - Free Report) delivered an average positive earnings surprise of 15% in the trailing four quarters. It has a long-term earnings growth rate of 18.6% and a Zacks Rank #2.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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Tapestry (TPR) Falls Despite Q3 Earnings & Revenues Beat
Tapestry, Inc. (TPR - Free Report) delivered better-than-expected third-quarter fiscal 2018 results. The adjusted earnings of 54 cents a share beat the Zacks Consensus Estimate of 50 cents, thereby resulting in a positive earnings surprise of 8% and marking the 17th straight quarter of earnings beat. The quarterly earnings improved approximately 17% year over year buoyed by top-line growth.
Net sales of this New York-based company came in at $1,322.4 million, up 33% year over year. On a constant currency basis, net sales surged 30%. We noted that the total sales came ahead of the Zacks Consensus Estimate of $1,304 million, marking the second successive quarterly beat.
Tapestry is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman and Kate Spade & Company is being viewed as a significant step in its efforts toward becoming a multi-brand company. Moreover, management has undertaken transformation initiatives revolving around product, stores and marketing. Sales increase at Coach brand, contributions from recent buyouts and cost containment efforts favorably impacted the results.
These endeavors have aided the stock to rise 25% in a year compared with the industry that declined 1.2%. However, we noticed that shares are down roughly 13% during pre-market trading hours.
Stock Down: Here’s Why
The stock came under pressure following management’s remark on Stuart Weitzman results. The company highlighted that delay in production and lower sell-through of important carryover styles hurt sales and margins. Management added that some of these issues may persist through the Fall/Winter season. Analysts also pointed that dismal comparable-store sales performance at Kate Spade and overall margin contraction might have also weigh on investor sentiment.
We note that consolidated adjusted gross profit surged roughly 29% to $913 million, however, gross margin decreased 190 basis points to 69%. Further, adjusted operating income came in at $184.3 million, up 14% from the prior-year quarter figure but operating margin shrunk 240 basis points to 13.9%.
Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. Price, Consensus and EPS Surprise | Tapestry, Inc. Quote
Segment Details
Net sales for Coach came in at $969.3 million, reflecting an increase of 6% on a reported basis and 3% on a constant currency basis. Comparable-store sales rose 3%, including a gain of about 100 basis points on account of rise in global e-commerce.
Kate Spade sales came in at $269.3 million. Comparable-store sales declined 9%, including the adverse impact of about 800 basis points from a fall in global e-commerce. Net sales for Stuart Weitzman totaled $83.8 million, reflecting an increase of 5%.
Store Update
At the end of the quarter, the company operated 405 Coach stores, 188 Kate Spade outlets and 70 Stuart Weitzman stores in North America. Internationally, the count stood at 575, 144 and 33 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry, which carries a Zacks Rank #2 (Buy), ended the quarter with cash, cash equivalents and short-term investments of $1,038.3 million, long-term debt of $1,599.5 million and shareholders' equity of $3,138 million.
FY 2018 Guidance
Management continues to expect fiscal 2018 revenue to increase approximately 30% year over year to $5.8-$5.9 billion with low-single digit organic growth and Kate Spade acquisition adding more than $1.2 billion in revenue.
Tapestry now projects operating income growth of at least 22% on the back of mid-single digit organic growth, Kate Spade buyout and estimated synergies of $45 million. Interest expense is now expected to be about $75 million.
Management now envisions earnings in the band of $2.57-$2.60, reflecting an increase of approximately 19-21%, comprising high single digit accretion from the Kate Spade buyout. The company had earlier projected earnings in the range of $2.52-$2.60 per share.
Interested in the Retail Space? Check Out These
Urban Outfitters (URBN - Free Report) delivered an average positive earnings surprise of 8.5% in the trailing four quarters. It has a long-term earnings growth rate of 12% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Macy's (M - Free Report) has a long-term earnings growth rate of 8.5% and a Zacks Rank #2.
Burlington Stores (BURL - Free Report) delivered an average positive earnings surprise of 15% in the trailing four quarters. It has a long-term earnings growth rate of 18.6% and a Zacks Rank #2.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>