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Tapestry, Inc. (TPR - Free Report) reported mixed third-quarter fiscal 2024 results, wherein the bottom line beat the Zacks Consensus Estimate and the top line missed the same. This house of modern luxury accessories and lifestyle brands witnessed year-over-year growth in earnings. However, revenues declined year over year.
Sales & Earnings Picture
Tapestry posted adjusted earnings of 81 cents per share, surpassing the Zacks Consensus Estimate of 67 cents. Also, earnings grew 3.8% from the year-ago period.
Net sales were $1,482.4 million, lagging the consensus estimate of $1,498 million. Sales declined 1.8% year over year. On a constant-currency basis, the top line was approximately flat year over year, excluding an FX headwind of about 160 basis points (bps).
We note that shares of this New York-based company have gained 41.6% in the past six months compared with the industry’s 27.8% growth.
For the fiscal third quarter, net sales for Coach were $1.15 billion, up 0.1% year over year. Kate Spade’s sales were $280.7 million, down 5.6% from the year-ago period. Net sales for Stuart Weitzman totaled $56.1 million, reflecting a year-over-year decrease of 17.9%.
Regional Details
Internationally, Tapestry reported revenue growth of 3% year over year at constant currency.
In Europe, the company experienced robust growth, with revenues increasing 19% from the previous year, driven by strong demand from tourists. Other Asia, excluding China and Japan, also saw significant growth with revenues rising 15%. Key markets like Korea and Malaysia showed particularly strong performance.
In Japan, revenues increased a modest 2% compared with the previous year. However, revenues in Greater China declined 2% compared with the previous year.
In North America, revenues declined 3% compared with the previous year. Despite the decrease in revenues, the region achieved a significant expansion in gross margins, indicating efficient management and a focus on profitability.
The current Zacks Rank #4 (Sell) company’s direct-to-consumer business saw a decline of 4% year over year. This downturn was primarily due to the performance in North America and Greater China, which faced challenges during this period.
Despite this overall decline in the direct-to-consumer segment, the company continued to emphasize its commitment to the business model by investing in digital platforms and maintaining a strong digital presence. Digital sales remained robust, being more than three times above pre-pandemic levels and representing more than 25% of total revenues.
This strong digital footing is underpinned by Tapestry's data-rich platform and leading capabilities, enabling it to meet consumers wherever and however they shop across their purchasing journey.
Image Source: Zacks Investment Research
Margin Discussion
The consolidated gross profit was $1.11 billion, up 0.8% from the year-ago period. Also, the gross margin increased 190 bps to 74.7%, gaining from a benefit of 100 bps from lower freight expenses, FX tailwinds and operational improvements.
The company reported an adjusted operating income of $239.2 million, up 5.7% from the prior-year quarter. Meanwhile, the adjusted operating margin was 16.1%, expanding 110 bps from the year-ago period. This increase was driven by disciplined expense management and gross margin gains.
Adjusted selling, general and administrative expenses were $868.1 million, down 0.4% year over year. As a percentage of net sales, this metric increased 80 bps to 58.6%.
Store Update
At the end of the fiscal third quarter, Tapestry operated 326 Coach stores, 198 Kate Spade outlets and 38 Stuart Weitzman stores in North America. Internationally, the store count was 611, 185 and 62 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the fiscal third quarter with cash, cash equivalents and short-term investments of $7.42 billion, long-term debt of $ 7.67 billion and stockholders' equity of $2.78 billion.
The company's cash flow from operating activities was an inflow of $98 million. The free cash flow also improved, reaching $79 million from $71 million in the prior year. The company incurred capital expenditure and implementation costs related to Cloud Computing of $29 million.
The company’s board has declared a quarterly cash dividend of 35 cents per share, payable on Jun 24, 2024, to shareholders of record as of Jun 7, 2024. 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 the fiscal fourth quarter, the company expects sales to decline approximately 1% on a constant currency basis, which translates to about 3% below the previous year on a reported basis, considering an FX headwind of roughly 150 bps. The operating margin is projected to decline around 50 bps despite continued strong gross margin gains, primarily due to higher SG&A expenses influenced by an expense timing shift from the third quarter. Earnings per share for the fourth quarter are expected to be around 85 cents.
For fiscal 2024, Tapestry envisions revenues of $6.6 billion, roughly consistent with the previous year on a reported basis and reflecting an approximate growth of 1% on a constant currency basis. The company expects to expand its operating margin by 110 bps and anticipates gross margin expansion of approximately 230 bps. This includes a benefit from moderating freight costs of roughly 130 bps. SG&A expenses are expected to witness a deleverage of about 120 bps due to reinvestments in brands, people and business-supportive growth initiatives.
Net interest expenses are anticipated to be $12 million whereas the tax rate is likely to be 20%. Adjusted earnings per share are projected to be $4.20-$4.25, implying 8-9% growth from the prior year’s reported figure. Free cash flow is anticipated to be around $1.1 billion, not including costs related to deals.
Tapestry has set a long-term leverage goal, aiming for a gross debt to adjusted EBITDA ratio of less than 2.5 times. The company anticipates meeting this target within two years following the completion of the Capri transaction.
Key Picks
Some better-ranked stocks in the same space are The Gap, Inc. (GPS - Free Report) , American Eagle Outfitters Inc. (AEO - Free Report) and Abercrombie & Fitch Co. (ANF - Free Report) .
The Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. The company sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GPS’ current fiscal-year earnings and sales indicates declines of 0.3% and 4.9%, respectively, from the year-ago period’s reported figures. GPS has a trailing four-quarter average earnings surprise of 180.9%.
American Eagle is a specialty retailer of casual apparel, accessories and footwear. The company currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for American Eagle’s current fiscal-year earnings and sales indicates growth of 12.5% and 3.4%, respectively, from the year-ago period’s reported figures. AEO has a trailing four-quarter average earnings surprise of 22.7%.
Abercrombie is a specialty retailer of premium, high-quality casual apparel. The company currently has a Zacks Rank of 2. ANF has a trailing four-quarter average earnings surprise of 715.6%.
The Zacks Consensus Estimate for Abercrombie’s current fiscal-year earnings and sales indicates growth of 20.1% and 5.9%, respectively, from the year-ago period’s reported figures.
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Tapestry (TPR) Q3 Earnings Beat Estimates, Sales Decline Y/Y
Tapestry, Inc. (TPR - Free Report) reported mixed third-quarter fiscal 2024 results, wherein the bottom line beat the Zacks Consensus Estimate and the top line missed the same. This house of modern luxury accessories and lifestyle brands witnessed year-over-year growth in earnings. However, revenues declined year over year.
Sales & Earnings Picture
Tapestry posted adjusted earnings of 81 cents per share, surpassing the Zacks Consensus Estimate of 67 cents. Also, earnings grew 3.8% from the year-ago period.
Net sales were $1,482.4 million, lagging the consensus estimate of $1,498 million. Sales declined 1.8% year over year. On a constant-currency basis, the top line was approximately flat year over year, excluding an FX headwind of about 160 basis points (bps).
We note that shares of this New York-based company have gained 41.6% in the past six months compared with the industry’s 27.8% growth.
Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote
Brand Performances
For the fiscal third quarter, net sales for Coach were $1.15 billion, up 0.1% year over year. Kate Spade’s sales were $280.7 million, down 5.6% from the year-ago period. Net sales for Stuart Weitzman totaled $56.1 million, reflecting a year-over-year decrease of 17.9%.
Regional Details
Internationally, Tapestry reported revenue growth of 3% year over year at constant currency.
In Europe, the company experienced robust growth, with revenues increasing 19% from the previous year, driven by strong demand from tourists. Other Asia, excluding China and Japan, also saw significant growth with revenues rising 15%. Key markets like Korea and Malaysia showed particularly strong performance.
In Japan, revenues increased a modest 2% compared with the previous year. However, revenues in Greater China declined 2% compared with the previous year.
In North America, revenues declined 3% compared with the previous year. Despite the decrease in revenues, the region achieved a significant expansion in gross margins, indicating efficient management and a focus on profitability.
The current Zacks Rank #4 (Sell) company’s direct-to-consumer business saw a decline of 4% year over year. This downturn was primarily due to the performance in North America and Greater China, which faced challenges during this period.
Despite this overall decline in the direct-to-consumer segment, the company continued to emphasize its commitment to the business model by investing in digital platforms and maintaining a strong digital presence. Digital sales remained robust, being more than three times above pre-pandemic levels and representing more than 25% of total revenues.
This strong digital footing is underpinned by Tapestry's data-rich platform and leading capabilities, enabling it to meet consumers wherever and however they shop across their purchasing journey.
Image Source: Zacks Investment Research
Margin Discussion
The consolidated gross profit was $1.11 billion, up 0.8% from the year-ago period. Also, the gross margin increased 190 bps to 74.7%, gaining from a benefit of 100 bps from lower freight expenses, FX tailwinds and operational improvements.
The company reported an adjusted operating income of $239.2 million, up 5.7% from the prior-year quarter. Meanwhile, the adjusted operating margin was 16.1%, expanding 110 bps from the year-ago period. This increase was driven by disciplined expense management and gross margin gains.
Adjusted selling, general and administrative expenses were $868.1 million, down 0.4% year over year. As a percentage of net sales, this metric increased 80 bps to 58.6%.
Store Update
At the end of the fiscal third quarter, Tapestry operated 326 Coach stores, 198 Kate Spade outlets and 38 Stuart Weitzman stores in North America. Internationally, the store count was 611, 185 and 62 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the fiscal third quarter with cash, cash equivalents and short-term investments of $7.42 billion, long-term debt of $ 7.67 billion and stockholders' equity of $2.78 billion.
The company's cash flow from operating activities was an inflow of $98 million. The free cash flow also improved, reaching $79 million from $71 million in the prior year. The company incurred capital expenditure and implementation costs related to Cloud Computing of $29 million.
The company’s board has declared a quarterly cash dividend of 35 cents per share, payable on Jun 24, 2024, to shareholders of record as of Jun 7, 2024. 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 the fiscal fourth quarter, the company expects sales to decline approximately 1% on a constant currency basis, which translates to about 3% below the previous year on a reported basis, considering an FX headwind of roughly 150 bps. The operating margin is projected to decline around 50 bps despite continued strong gross margin gains, primarily due to higher SG&A expenses influenced by an expense timing shift from the third quarter. Earnings per share for the fourth quarter are expected to be around 85 cents.
For fiscal 2024, Tapestry envisions revenues of $6.6 billion, roughly consistent with the previous year on a reported basis and reflecting an approximate growth of 1% on a constant currency basis. The company expects to expand its operating margin by 110 bps and anticipates gross margin expansion of approximately 230 bps. This includes a benefit from moderating freight costs of roughly 130 bps. SG&A expenses are expected to witness a deleverage of about 120 bps due to reinvestments in brands, people and business-supportive growth initiatives.
Net interest expenses are anticipated to be $12 million whereas the tax rate is likely to be 20%. Adjusted earnings per share are projected to be $4.20-$4.25, implying 8-9% growth from the prior year’s reported figure. Free cash flow is anticipated to be around $1.1 billion, not including costs related to deals.
Tapestry has set a long-term leverage goal, aiming for a gross debt to adjusted EBITDA ratio of less than 2.5 times. The company anticipates meeting this target within two years following the completion of the Capri transaction.
Key Picks
Some better-ranked stocks in the same space are The Gap, Inc. (GPS - Free Report) , American Eagle Outfitters Inc. (AEO - Free Report) and Abercrombie & Fitch Co. (ANF - Free Report) .
The Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. The company sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GPS’ current fiscal-year earnings and sales indicates declines of 0.3% and 4.9%, respectively, from the year-ago period’s reported figures. GPS has a trailing four-quarter average earnings surprise of 180.9%.
American Eagle is a specialty retailer of casual apparel, accessories and footwear. The company currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for American Eagle’s current fiscal-year earnings and sales indicates growth of 12.5% and 3.4%, respectively, from the year-ago period’s reported figures. AEO has a trailing four-quarter average earnings surprise of 22.7%.
Abercrombie is a specialty retailer of premium, high-quality casual apparel. The company currently has a Zacks Rank of 2. ANF has a trailing four-quarter average earnings surprise of 715.6%.
The Zacks Consensus Estimate for Abercrombie’s current fiscal-year earnings and sales indicates growth of 20.1% and 5.9%, respectively, from the year-ago period’s reported figures.