Tapestry, Inc. (TPR Quick QuoteTPR - Free Report) reported soft first-quarter fiscal 2024 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 revenues and earnings.

The company has agreed to acquire Capri Holdings for nearly $8.5 billion. The deal will unite the six distinctive iconic brands into a powerful global house of luxury portfolio. Recently, Capri Holdings’ shareholders have approved the transaction. Tapestry is still working to obtain all the necessary regulatory approvals, including responding to the U.S. Federal Trade Commission’s second request. Management is confident about completing this transaction, which is likely to close next year.

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 first-quarter earnings of 84 cents a share, lagging the Zacks Consensus Estimate of earnings of 90 cents per share. However, the metric grew 6.3% from the year-ago period.

Tapestry, Inc. Price, Consensus and EPS Surprise

 

Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote

Net sales were $1,513.2 million, missing the consensus estimate of $1,540 million. The metric rose 0.4% year over year. On a constant-currency basis, the top line inched up 2%, excluding an FX headwind of about 130 basis points (bps).

Let’s Delve Deeper

For the fiscal first quarter, net sales for Coach were $1,157.4 million, up 3% year over year. Kate Spade’s sales were $303.2 million, down 6% from the year-ago period. Net sales for Stuart Weitzman totaled $52.6 million, reflecting a decrease of 19% year over year.

International sales grew 7% at constant currency, including 9% in Greater China and 12% in Japan. The company delivered nearly in-line revenues in North America despite a tough consumer demand environment.

This Zacks Rank #3 (Hold) company realized 1% growth in direct-to-consumer sales at constant currency, with a low-single-digit rise in stores.

Margin Discussion

The consolidated gross profit was $1,097.7 million, up 4.1% from the year-ago period. Also, the gross margin increased 250 bps to 72.5%, gaining from operational efficiency and lower freight expenses.

Further, the company reported adjusted operating income of $272.8 million, up 7.4% from the prior-year quarter. Meanwhile, the operating margin was 18%, expanding 110 bps from the year-ago period. This increase was driven by disciplined expense management and gross margin gains.

Store Update

At the end of the quarter, Tapestry operated 330 Coach stores, 204 Kate Spade outlets and 36 Stuart Weitzman stores in North America. Internationally, the count was 604, 192 and 61 for Coach, Kate Spade and Stuart Weitzman, respectively.

Other Financial Details

Tapestry ended the quarter with cash, cash equivalents and short-term investments of $639 million, long-term debt of $1,6329.9 million and stockholders' equity of $2,415.7 million.

The company generated net cash of $75.3 million during the first quarter of the current fiscal year and free cash flow was an inflow of $54 million. The company incurred capital expenditures and implementation costs related to Cloud Computing of $29 million in the aforementioned period.

The company’s board has declared a quarterly cash dividend of 35 cents per share payable on Dec 26, 2023, to shareholders of record as of Dec 8, 2023. Tapestry expects to return nearly $325 million to shareholders via dividend payments for an annual dividend rate of $1.40 per share. This reflects an increase of 17% from the prior year.

Outlook

For fiscal 2024, Tapestry envisions revenues to be roughly $6.7 billion, reflecting a slight year-over-year rise on a reported basis. Net interest expenses are anticipated to be nearly $20 million while the tax rate is likely to be approximately 20%.

Adjusted earnings per share are projected to be $4.10-$4.15, representing nearly 6-7% growth from the prior year.

This guidance assumes no revenue or earnings contribution and deal-related costs from the proposed acquisition of Capri Holdings, gradual recovery in Greater China, and no worsening of inflationary pressures or consumer confidence.

Key Picks

Some better-ranked stocks from the same space are Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) , American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) and Dillard's, Inc. (DDS Quick QuoteDDS - Free Report) .

Abercrombie & Fitch is a specialty retailer of premium, high-quality casual apparel. The company 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 fiscal-year earnings and sales indicates growth of 1,644% and 10%, respectively, from the year-ago period’s reported figures. ANF has a trailing four-quarter average earnings surprise of 724.8%.

American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. It sports a Zacks Rank of 1 at present.

The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 33% and 2.2%, respectively, from the year-ago period’s reported figures. AEO has a trailing four-quarter average earnings surprise of 43.2%.

Dillard's, a department store retailer, currently carries a Zacks Rank #2 (Buy). DDS has a trailing four-quarter earnings surprise of 77.1%, on average.

The Zacks Consensus Estimate for Dillard's fiscal 2024 sales indicates growth of 0.3% from the year-ago period’s reported figure.