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In spite of a challenging backdrop, Tapestry, Inc. (TPR - Free Report) reported better-than-expected second-quarter fiscal 2021 results. This house of modern luxury accessories and lifestyle brands witnessed significant improvement in sales trends on a sequential basis. While the quarter marked the fifth straight top-line beat, the bottom line surpassed the Zacks Consensus Estimate for the third time. Also, the company attained a meaningful improvement in earnings per share on a year-over-year basis owing to gross margin expansion and lower SG&A expenses.
Tapestry posted adjusted earnings of $1.15 per share that comfortably surpassed the Zacks Consensus Estimate of $1.00 and increased from $1.10 reported in the year-ago quarter.
Net sales of this New York-based company were $1,685.4 million, ahead of the Zacks Consensus Estimate of $1,628.1 million. However, the metric declined 7% on a year-over-year basis. Nonetheless, we note that the rate of sales decline has decelerated sharply from 14% witnessed in the preceding quarter. Management highlighted that strength in e-commerce and China contributed to this upbeat performance. Notably, the company registered new customer acquisition across all brands.
Shares of this Zacks Rank #1 (Strong Buy) company have increased 40% in the past three months compared with the industry’s rally of 49.3%.
Clearly, Tapestry’s impressive performance validates significant progress on previously announced Acceleration Program. The program aims at transforming into a leaner and more responsive organization, building significant data and analytics capabilities with focus on e-commerce channels, and operating with a clearly defined path and strategy for each brand.
Management stated that quarterly results came ahead of expectations. Notably, the company continued with its sturdy e-commerce performance with digital sales rising in triple digits compared with the year-ago period. Impressively, the company registered 30% year-over-year increase in sales in Mainland China. The company also efficiently managed inventories, which were down 16% from the prior-year period. Additionally, as a part of global fleet optimization, the company notified the closure of 18 net stores in the first half of the fiscal year.
Markedly, Tapestry remains on track to realize about $300 million in gross run rate expense savings, including $200 million projected for fiscal 2021.
Although management did not provide detailed guidance for fiscal 2021 owing to the ongoing pandemic, its actions to lower promotional activity and improve Average Unit Retail or AURs across brands as well as disciplined inventory and expense management helped post second successive quarter of operating income growth.
Again, given stronger-than-expected results in the first half and anticipating a sustained recovery, Tapestry now envisions revenues for fiscal 2021 to improve at a high-single digit rate on a 52-week basis and around 10% on 53-week basis. The company continues to expect top-line inflection and robust bottom-line growth during the second half of the fiscal year.
Margin Discussions
Consolidated adjusted gross profit came in at $1,173.7 million, down 3% from the year-ago period. However, adjusted gross margin expanded 290 basis points to 69.6% owing to lower and more disciplined promotional activity. Further, the company reported adjusted operating income of $411.1 million, up 10% year over year, while adjusted operating margin increased 380 basis points to 24.4%.
We note that adjusted SG&A expenses fell 9% to $762.6 million, reflecting cost containment efforts and earlier announced actions to transform the company’s operating model. Again, as a percentage of net sales, SG&A decreased 90 basis points to 45.2%.
Segment Details
Net sales for Coach came in at $1,225.3 million, down 4% year over year. Adjusted gross margin for the segment expanded 340 basis points to 72.5%. We note that adjusted operating margin increased to 34.1% from 30.1% in the year-ago quarter.
Kate Spade sales came in at $375.6 million, down 13% from the year-ago period. Adjusted gross margin for the segment increased 110 basis points to 62.1%. The segment reported adjusted operating margin of 16.3%, up 40 basis points from the year-ago quarter.
Net sales for Stuart Weitzman totaled $84.5 million, down 27% year over year. The segment’s adjusted gross margin improved 40 basis points to 62.2%. The adjusted operating margin expanded 150 basis points from the year-ago quarter to 11.3%.
Store Update
At the end of the quarter, the company operated 374 Coach stores, 216 Kate Spade outlets and 54 Stuart Weitzman stores in North America. Internationally, the count was 586, 206 and 55 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the quarter with cash, cash equivalents and short-term investments of $1,651.8 million, long-term debt of $1,589.3 million and stockholders' equity of $2,890.7 million.
Children's Place (PLCE - Free Report) flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 47.7%, on average.
Capri Holdings (CPRI - Free Report) has a long-term earnings growth rate of 5.6%. Currently, the stock carries a Zacks Rank #2 (Buy).
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Tapestry's (TPR) Q2 Earnings Surpass Estimates, Increase Y/Y
In spite of a challenging backdrop, Tapestry, Inc. (TPR - Free Report) reported better-than-expected second-quarter fiscal 2021 results. This house of modern luxury accessories and lifestyle brands witnessed significant improvement in sales trends on a sequential basis. While the quarter marked the fifth straight top-line beat, the bottom line surpassed the Zacks Consensus Estimate for the third time. Also, the company attained a meaningful improvement in earnings per share on a year-over-year basis owing to gross margin expansion and lower SG&A expenses.
Tapestry posted adjusted earnings of $1.15 per share that comfortably surpassed the Zacks Consensus Estimate of $1.00 and increased from $1.10 reported in the year-ago quarter.
Net sales of this New York-based company were $1,685.4 million, ahead of the Zacks Consensus Estimate of $1,628.1 million. However, the metric declined 7% on a year-over-year basis. Nonetheless, we note that the rate of sales decline has decelerated sharply from 14% witnessed in the preceding quarter. Management highlighted that strength in e-commerce and China contributed to this upbeat performance. Notably, the company registered new customer acquisition across all brands.
Shares of this Zacks Rank #1 (Strong Buy) company have increased 40% in the past three months compared with the industry’s rally of 49.3%.
Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote
Let’s Take an Insight
Clearly, Tapestry’s impressive performance validates significant progress on previously announced Acceleration Program. The program aims at transforming into a leaner and more responsive organization, building significant data and analytics capabilities with focus on e-commerce channels, and operating with a clearly defined path and strategy for each brand.
Management stated that quarterly results came ahead of expectations. Notably, the company continued with its sturdy e-commerce performance with digital sales rising in triple digits compared with the year-ago period. Impressively, the company registered 30% year-over-year increase in sales in Mainland China. The company also efficiently managed inventories, which were down 16% from the prior-year period. Additionally, as a part of global fleet optimization, the company notified the closure of 18 net stores in the first half of the fiscal year.
Markedly, Tapestry remains on track to realize about $300 million in gross run rate expense savings, including $200 million projected for fiscal 2021.
Although management did not provide detailed guidance for fiscal 2021 owing to the ongoing pandemic, its actions to lower promotional activity and improve Average Unit Retail or AURs across brands as well as disciplined inventory and expense management helped post second successive quarter of operating income growth.
Again, given stronger-than-expected results in the first half and anticipating a sustained recovery, Tapestry now envisions revenues for fiscal 2021 to improve at a high-single digit rate on a 52-week basis and around 10% on 53-week basis. The company continues to expect top-line inflection and robust bottom-line growth during the second half of the fiscal year.
Margin Discussions
Consolidated adjusted gross profit came in at $1,173.7 million, down 3% from the year-ago period. However, adjusted gross margin expanded 290 basis points to 69.6% owing to lower and more disciplined promotional activity. Further, the company reported adjusted operating income of $411.1 million, up 10% year over year, while adjusted operating margin increased 380 basis points to 24.4%.
We note that adjusted SG&A expenses fell 9% to $762.6 million, reflecting cost containment efforts and earlier announced actions to transform the company’s operating model. Again, as a percentage of net sales, SG&A decreased 90 basis points to 45.2%.
Segment Details
Net sales for Coach came in at $1,225.3 million, down 4% year over year. Adjusted gross margin for the segment expanded 340 basis points to 72.5%. We note that adjusted operating margin increased to 34.1% from 30.1% in the year-ago quarter.
Kate Spade sales came in at $375.6 million, down 13% from the year-ago period. Adjusted gross margin for the segment increased 110 basis points to 62.1%. The segment reported adjusted operating margin of 16.3%, up 40 basis points from the year-ago quarter.
Net sales for Stuart Weitzman totaled $84.5 million, down 27% year over year. The segment’s adjusted gross margin improved 40 basis points to 62.2%. The adjusted operating margin expanded 150 basis points from the year-ago quarter to 11.3%.
Store Update
At the end of the quarter, the company operated 374 Coach stores, 216 Kate Spade outlets and 54 Stuart Weitzman stores in North America. Internationally, the count was 586, 206 and 55 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the quarter with cash, cash equivalents and short-term investments of $1,651.8 million, long-term debt of $1,589.3 million and stockholders' equity of $2,890.7 million.
Here are 3 Key Stocks for You
Boot Barn Holdings (BOOT - Free Report) , a Zacks Rank #1 stock, has a trailing four-quarter earnings surprise of 23.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Children's Place (PLCE - Free Report) flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 47.7%, on average.
Capri Holdings (CPRI - Free Report) has a long-term earnings growth rate of 5.6%. Currently, the stock carries a Zacks Rank #2 (Buy).
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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