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Tapestry (TPR) Q2 Earnings Beat Estimates, Revenues Down Y/Y
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Tapestry, Inc. (TPR - Free Report) reported second-quarter fiscal 2023 results, wherein the top line marginally missed the Zacks Consensus Estimate while the bottom line beat the same. This house of modern luxury accessories and lifestyle brands witnessed a net sales decline but year-over-year growth in earnings per share. The parent of Coach and Kate Spade brands raised earnings view for the fiscal year on gains from operational efficiency.
We note that shares of Tapestry jumped 7.5% during the trading hours on Feb 9 on solid earnings results in the second quarter and higher earnings view for fiscal 2023. Shares of this Zacks Rank #3 (Hold) company have increased 42.7% in the past three months compared with the industry’s 17.6% growth.
Sales & Earnings Picture
Tapestry posted second-quarter earnings of $1.36 a share, which beat the consensus mark of $1.26. Also, the metric grew 10% from the year-ago period despite adverse currency translations to the tune of 11 cents a share.
Image Source: Zacks Investment Research
Net sales of this New York-based company came in at $2,025.4 million, marginally missing the Zacks Consensus Estimate of $2,034 million. The metric also dipped 5% on a year-over-year basis on lower sales across each brand. On a constant-currency basis, the top line fell 2%, excluding an FX headwind of about 380 basis points.
Let’s Delve Deeper
For the second quarter, net sales for Coach came in at 1,449.7 million, down 5% year over year. Kate Spade’s sales came in at $490.3 million, down 2% from the year-ago period. Net sales for Stuart Weitzman totaled $85.4 million, reflecting a decline of 26% year over year.
Sales in North America dipped 2% year over year, representing growth of about 25% versus FY19 pre-pandemic levels on a reported basis. The company added nearly 2.6 million new customers in North America.
Tapestry saw double-digit sales increases at constant currency in Other Asia, Japan and Europe, which outpaced expectations. It delivered low-single-digit constant currency revenue growth outside of Greater China. This consisted of a low-single-digit increase in direct-to-consumer sales on gains from stores. In Greater China, revenue fell 20% in constant currency owing to incremental pressures related to the pandemic. However, the company has seen a major sequential improvement in traffic and revenue trends in the third quarter to date.
The consolidated gross profit came in at $1,389.3 million, down 4.7% from the year-ago period. However, the gross margin increased 50 basis points to 68.6%, gaining from operational efficiency and lower freight expenses of 130 basis points. This was somewhat offset by an FX headwind of about 100 basis points.
Further, the company reported an operating income of $418.2 million, down from an operating income of $462.8 million in the prior-year quarter. Meanwhile, the operating margin came in at 20.6% and was hurt by an FX headwind of approximately 120 basis points.
Store Update
At the end of the quarter, Tapestry operated 341 Coach stores, 208 Kate Spade outlets and 37 Stuart Weitzman stores in North America. Internationally, the count was 612, 192 and 62 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the quarter with cash, cash equivalents and short-term investments of $846.2 million, long-term debt of $1,647.5 million and stockholders' equity of $2,313.2 million.
Free cash flow for the year-to-date period through the second quarter was an inflow of $354 million. The company incurred capital expenditures and implementation costs related to Cloud Computing of $149 million in the aforementioned period.
Tapestry returned $444 million to shareholders through a combination of share repurchases and dividends during the first half of fiscal 2023. The company looks to repurchase approximately $700 million worth of shares in fiscal 2023, with $300 million spent in the first six months to repurchase approximately 8.4 million shares at an average cost of $35.73. The company anticipates a dividend payout of about $300 million. Management expects to return about $1 billion to shareholders during fiscal 2023, buoyed by its healthy balance sheet and free cash flow generation.
Outlook
Management raised its earnings view for fiscal 2023 on its operational outperformance in the second quarter and a more moderate currency headwind than previously anticipated. These are likely to be somewhat offset by a more modest revenue improvement assumption for Greater China. We note that Greater China has shown a significant sequential improvement third quarter to date.
Tapestry now envisions revenues to be roughly $6.6 billion, reflecting a slight decrease versus the prior year owing to nearly 300 basis points of FX pressure. On a constant currency basis, revenue is estimated to grow 2%-3% year over year. Earlier, the company projected revenues of $6.5-$6.6 billion for fiscal 2023.
The company now guided earnings in the band of $3.70-$3.75, representing high-single-digit growth compared to the prior year on an adjusted basis and includes a currency headwind of approximately 40 cents. Management earlier forecast earnings between $3.60 and $3.70 per share.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 0.5% and 526.3%, respectively, from the year-ago reported figures. ANF delivered an earnings surprise of 107.7% in the last reported quarter.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO has delivered an earnings surprise of 82.6% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.3% and 24.2%, respectively, from the year-ago reported figures.
Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.
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Tapestry (TPR) Q2 Earnings Beat Estimates, Revenues Down Y/Y
Tapestry, Inc. (TPR - Free Report) reported second-quarter fiscal 2023 results, wherein the top line marginally missed the Zacks Consensus Estimate while the bottom line beat the same. This house of modern luxury accessories and lifestyle brands witnessed a net sales decline but year-over-year growth in earnings per share. The parent of Coach and Kate Spade brands raised earnings view for the fiscal year on gains from operational efficiency.
We note that shares of Tapestry jumped 7.5% during the trading hours on Feb 9 on solid earnings results in the second quarter and higher earnings view for fiscal 2023. Shares of this Zacks Rank #3 (Hold) company have increased 42.7% in the past three months compared with the industry’s 17.6% growth.
Sales & Earnings Picture
Tapestry posted second-quarter earnings of $1.36 a share, which beat the consensus mark of $1.26. Also, the metric grew 10% from the year-ago period despite adverse currency translations to the tune of 11 cents a share.
Image Source: Zacks Investment Research
Net sales of this New York-based company came in at $2,025.4 million, marginally missing the Zacks Consensus Estimate of $2,034 million. The metric also dipped 5% on a year-over-year basis on lower sales across each brand. On a constant-currency basis, the top line fell 2%, excluding an FX headwind of about 380 basis points.
Let’s Delve Deeper
For the second quarter, net sales for Coach came in at 1,449.7 million, down 5% year over year. Kate Spade’s sales came in at $490.3 million, down 2% from the year-ago period. Net sales for Stuart Weitzman totaled $85.4 million, reflecting a decline of 26% year over year.
Sales in North America dipped 2% year over year, representing growth of about 25% versus FY19 pre-pandemic levels on a reported basis. The company added nearly 2.6 million new customers in North America.
Tapestry saw double-digit sales increases at constant currency in Other Asia, Japan and Europe, which outpaced expectations. It delivered low-single-digit constant currency revenue growth outside of Greater China. This consisted of a low-single-digit increase in direct-to-consumer sales on gains from stores. In Greater China, revenue fell 20% in constant currency owing to incremental pressures related to the pandemic. However, the company has seen a major sequential improvement in traffic and revenue trends in the third quarter to date.
Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote
Margin Discussion
The consolidated gross profit came in at $1,389.3 million, down 4.7% from the year-ago period. However, the gross margin increased 50 basis points to 68.6%, gaining from operational efficiency and lower freight expenses of 130 basis points. This was somewhat offset by an FX headwind of about 100 basis points.
Further, the company reported an operating income of $418.2 million, down from an operating income of $462.8 million in the prior-year quarter. Meanwhile, the operating margin came in at 20.6% and was hurt by an FX headwind of approximately 120 basis points.
Store Update
At the end of the quarter, Tapestry operated 341 Coach stores, 208 Kate Spade outlets and 37 Stuart Weitzman stores in North America. Internationally, the count was 612, 192 and 62 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the quarter with cash, cash equivalents and short-term investments of $846.2 million, long-term debt of $1,647.5 million and stockholders' equity of $2,313.2 million.
Free cash flow for the year-to-date period through the second quarter was an inflow of $354 million. The company incurred capital expenditures and implementation costs related to Cloud Computing of $149 million in the aforementioned period.
Tapestry returned $444 million to shareholders through a combination of share repurchases and dividends during the first half of fiscal 2023. The company looks to repurchase approximately $700 million worth of shares in fiscal 2023, with $300 million spent in the first six months to repurchase approximately 8.4 million shares at an average cost of $35.73. The company anticipates a dividend payout of about $300 million. Management expects to return about $1 billion to shareholders during fiscal 2023, buoyed by its healthy balance sheet and free cash flow generation.
Outlook
Management raised its earnings view for fiscal 2023 on its operational outperformance in the second quarter and a more moderate currency headwind than previously anticipated. These are likely to be somewhat offset by a more modest revenue improvement assumption for Greater China. We note that Greater China has shown a significant sequential improvement third quarter to date.
Tapestry now envisions revenues to be roughly $6.6 billion, reflecting a slight decrease versus the prior year owing to nearly 300 basis points of FX pressure. On a constant currency basis, revenue is estimated to grow 2%-3% year over year. Earlier, the company projected revenues of $6.5-$6.6 billion for fiscal 2023.
The company now guided earnings in the band of $3.70-$3.75, representing high-single-digit growth compared to the prior year on an adjusted basis and includes a currency headwind of approximately 40 cents. Management earlier forecast earnings between $3.60 and $3.70 per share.
Three Top-Ranked Stocks
We highlighted three top-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , American Eagle Outfitters (AEO - Free Report) and Boot Barn (BOOT - Free Report) .
Abercrombie & Fitch, a leading casual apparel retailer currently sports a Zacks Rank #1 (Strong Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 0.5% and 526.3%, respectively, from the year-ago reported figures. ANF delivered an earnings surprise of 107.7% in the last reported quarter.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO has delivered an earnings surprise of 82.6% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.3% and 24.2%, respectively, from the year-ago reported figures.
Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.