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Tapestry (TPR) Q4 Earnings Miss Estimates, Revenues in Line
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Tapestry, Inc. (TPR - Free Report) reported fourth-quarter fiscal 2023 results, wherein the top and bottom lines missed the Zacks Consensus Estimate. This house of modern luxury accessories and lifestyle brands witnessed year-over-year growth in earnings per share while sales remained in line. The company recently unveiled plans to acquire Capri Holdings for nearly $8.5 billion or $57.00 per share. The deal, which is likely to conclude in the next calendar year, will unite the six distinctive iconic brands into a powerful global house of luxury portfolio.
We note that shares of this New York-based company have lost 22.2% in the past three months against the industry’s 6.2% rise.
Sales & Earnings Picture
Tapestry posted fourth-quarter earnings of 95 cents a share, lagging the Zacks Consensus Estimate of earnings of 96 cents per share. However, the metric grew more than 20% from the year-ago period.
Net sales came in at $1,619.5 million, missing the consensus estimate of $1,667 million. The metric remained flat year over year. On a constant-currency basis, the top line inched up 1%, excluding an FX headwind of about 180 basis points (bps).
Image Source: Zacks Investment Research
Let’s Delve Deeper
For the fiscal fourth quarter, net sales for Coach came in at $1,247.4 million, up 3% year over year. Kate Spade’s sales came in at $309.5 million, down 10% from the year-ago period. Net sales for Stuart Weitzman totaled $62.6 million, reflecting a decrease of 13% year over year.
International sales grew 22% at constant currency, including +50% in Greater China, +12% in Japan and +7% in Other Asia, while the metric in Europe fell 13% year over year.
This Zacks Rank #3 (Hold) company realized 2% growth in direct-to-consumer sales at constant currency, with a low-single-digit increase in stores.
Margin Discussion
The consolidated gross profit came in at $1,172.7 million, up 4.8% from the year-ago period. Also, the gross margin increased 350 bps to 72.4%, gaining from operational efficiency and lower freight expenses. This was somewhat offset by an FX headwind of about 80 bps.
Further, the company reported an operating income of $273.6 million, up from an adjusted operating income of $260 million in the prior-year quarter. Meanwhile, the operating margin came in at 16.9%, expanding 90 bps from the year-ago period. This increase was driven by disciplined expense management and gross margin gains. However, the metric was partially hurt by an FX headwind of approximately 100 bps.
Store Update
At the end of the quarter, Tapestry operated 330 Coach stores, 205 Kate Spade outlets and 36 Stuart Weitzman stores in North America. Internationally, the count was 609, 192 and 57 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the quarter with cash, cash equivalents and short-term investments of $742 million, long-term debt of $1,635.8 million and stockholders' equity of $2,277.8 million.
The company generated net cash of $975.2 million during the fiscal year and free cash flow was an inflow of $791 million. The company incurred capital expenditures and implementation costs related to Cloud Computing of $261 million in the aforementioned period.
Tapestry returned $1 billion to shareholders via share repurchases and dividends during fiscal 2023. The company repurchased $700 million in common stock or roughly 17.8 million shares at an average cost of $39.30 a share. The company’s board also approved the return of $283 million to shareholders in fiscal 2023 for an annual rate of $1.20 a share. This rate shows a year-over-year increase and represents a dividend payout ratio of 30%.
For fiscal 2024, the company’s board has approved a quarterly cash dividend of 35 cents per share, reflecting a hike of 17% versus the last year and annual dividend rate of $1.40 a share.
Fiscal 2023
In fiscal 2023, the company achieved International revenue increase of 13% at constant currency, with increases across all the major markets. This includes growth of more than 36% in Other Asia, 15% in Japan, 7% in Europe and 5% in Greater China in spite of the first-half pandemic-related pressures.
Tapestry saw a 2% revenue decrease in North America during the fiscal year and an 8% fall in the fourth quarter despite the sluggish consumer demand environment. However, there has been a sequential improvement in the revenue trends in first quarter to date in fiscal 2024.
The company’s direct-to-consumer revenues grew 3% at constant currency for the fiscal year, driven by a mid-single-digit rise in stores. Further, the company recorded double-digit earnings per share growth in the fiscal year and generated solid free cash flow.
Outlook
For fiscal 2024, Tapestry envisions revenues to be roughly $6.9 billion, reflecting a rise of approximately 3-4% year over year on both a reported and constant currency basis. Net interest expenses are anticipated to be nearly $20 million while tax rate is likely to be approximately 20%.
As earlier announced, the company has suspended its share buyback program, ahead of the pending acquisition of Capri Holdings, until it reaches a leverage target of under 2.5x on a gross debt/EBITDA basis.
Adjusted earnings per share are projected to be $4.10-$4.15, representing nearly 6-7% growth from the prior year. This included the suspending share repurchase impacts, which reflects a negative impact of 10 cents, compared with the prior expectations.
This guidance assumes no revenue or earnings contribution from the proposed acquisition of Capri Holdings, gradual recovery in Greater China, and no worsening of inflationary pressures or consumer confidence.
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Boot Barn (BOOT - Free Report) and American Eagle Outfitters (AEO - Free Report) .
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share suggests growth of 3.4% and 736%, respectively, from the year-ago reported figures. ANF has delivered an earnings surprise of 480.6% in the last four quarters.
Boot Barn, a fashion retailer of apparel and accessories, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 13.5%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 5.1% from the year-ago reported figure.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO has delivered an average earnings surprise of 9.2% in the last four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year earnings per share suggests growth of 7.2% from the year-ago reported figure.
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Tapestry (TPR) Q4 Earnings Miss Estimates, Revenues in Line
Tapestry, Inc. (TPR - Free Report) reported fourth-quarter fiscal 2023 results, wherein the top and bottom lines missed the Zacks Consensus Estimate. This house of modern luxury accessories and lifestyle brands witnessed year-over-year growth in earnings per share while sales remained in line. The company recently unveiled plans to acquire Capri Holdings for nearly $8.5 billion or $57.00 per share. The deal, which is likely to conclude in the next calendar year, will unite the six distinctive iconic brands into a powerful global house of luxury portfolio.
We note that shares of this New York-based company have lost 22.2% in the past three months against the industry’s 6.2% rise.
Sales & Earnings Picture
Tapestry posted fourth-quarter earnings of 95 cents a share, lagging the Zacks Consensus Estimate of earnings of 96 cents per share. However, the metric grew more than 20% from the year-ago period.
Net sales came in at $1,619.5 million, missing the consensus estimate of $1,667 million. The metric remained flat year over year. On a constant-currency basis, the top line inched up 1%, excluding an FX headwind of about 180 basis points (bps).
Image Source: Zacks Investment Research
Let’s Delve Deeper
For the fiscal fourth quarter, net sales for Coach came in at $1,247.4 million, up 3% year over year. Kate Spade’s sales came in at $309.5 million, down 10% from the year-ago period. Net sales for Stuart Weitzman totaled $62.6 million, reflecting a decrease of 13% year over year.
International sales grew 22% at constant currency, including +50% in Greater China, +12% in Japan and +7% in Other Asia, while the metric in Europe fell 13% year over year.
This Zacks Rank #3 (Hold) company realized 2% growth in direct-to-consumer sales at constant currency, with a low-single-digit increase in stores.
Margin Discussion
The consolidated gross profit came in at $1,172.7 million, up 4.8% from the year-ago period. Also, the gross margin increased 350 bps to 72.4%, gaining from operational efficiency and lower freight expenses. This was somewhat offset by an FX headwind of about 80 bps.
Further, the company reported an operating income of $273.6 million, up from an adjusted operating income of $260 million in the prior-year quarter. Meanwhile, the operating margin came in at 16.9%, expanding 90 bps from the year-ago period. This increase was driven by disciplined expense management and gross margin gains. However, the metric was partially hurt by an FX headwind of approximately 100 bps.
Store Update
At the end of the quarter, Tapestry operated 330 Coach stores, 205 Kate Spade outlets and 36 Stuart Weitzman stores in North America. Internationally, the count was 609, 192 and 57 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the quarter with cash, cash equivalents and short-term investments of $742 million, long-term debt of $1,635.8 million and stockholders' equity of $2,277.8 million.
The company generated net cash of $975.2 million during the fiscal year and free cash flow was an inflow of $791 million. The company incurred capital expenditures and implementation costs related to Cloud Computing of $261 million in the aforementioned period.
Tapestry returned $1 billion to shareholders via share repurchases and dividends during fiscal 2023. The company repurchased $700 million in common stock or roughly 17.8 million shares at an average cost of $39.30 a share. The company’s board also approved the return of $283 million to shareholders in fiscal 2023 for an annual rate of $1.20 a share. This rate shows a year-over-year increase and represents a dividend payout ratio of 30%.
For fiscal 2024, the company’s board has approved a quarterly cash dividend of 35 cents per share, reflecting a hike of 17% versus the last year and annual dividend rate of $1.40 a share.
Fiscal 2023
In fiscal 2023, the company achieved International revenue increase of 13% at constant currency, with increases across all the major markets. This includes growth of more than 36% in Other Asia, 15% in Japan, 7% in Europe and 5% in Greater China in spite of the first-half pandemic-related pressures.
Tapestry saw a 2% revenue decrease in North America during the fiscal year and an 8% fall in the fourth quarter despite the sluggish consumer demand environment. However, there has been a sequential improvement in the revenue trends in first quarter to date in fiscal 2024.
The company’s direct-to-consumer revenues grew 3% at constant currency for the fiscal year, driven by a mid-single-digit rise in stores. Further, the company recorded double-digit earnings per share growth in the fiscal year and generated solid free cash flow.
Outlook
For fiscal 2024, Tapestry envisions revenues to be roughly $6.9 billion, reflecting a rise of approximately 3-4% year over year on both a reported and constant currency basis. Net interest expenses are anticipated to be nearly $20 million while tax rate is likely to be approximately 20%.
As earlier announced, the company has suspended its share buyback program, ahead of the pending acquisition of Capri Holdings, until it reaches a leverage target of under 2.5x on a gross debt/EBITDA basis.
Adjusted earnings per share are projected to be $4.10-$4.15, representing nearly 6-7% growth from the prior year. This included the suspending share repurchase impacts, which reflects a negative impact of 10 cents, compared with the prior expectations.
This guidance assumes no revenue or earnings contribution from the proposed acquisition of Capri Holdings, gradual recovery in Greater China, and no worsening of inflationary pressures or consumer confidence.
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Boot Barn (BOOT - Free Report) and American Eagle Outfitters (AEO - Free Report) .
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share suggests growth of 3.4% and 736%, respectively, from the year-ago reported figures. ANF has delivered an earnings surprise of 480.6% in the last four quarters.
Boot Barn, a fashion retailer of apparel and accessories, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 13.5%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 5.1% from the year-ago reported figure.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO has delivered an average earnings surprise of 9.2% in the last four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year earnings per share suggests growth of 7.2% from the year-ago reported figure.