Tapestry, Inc., a New York-based house of modern luxury accessories and lifestyle brand, reported results for the fiscal second quarter ended 26th December, 2020.
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Joanne Crevoiserat, Chief Executive Officer of Tapestry, Inc., said, “Our results significantly outpaced expectations driven by the successful execution of our Acceleration Program. Our sharpened focus on the consumer fueled new customer acquisition across all brands with notable sales gains in Digital and China. Importantly, for the second consecutive quarter, we generated strong operating income growth supported by a reduction in promotional activity and higher AUR, as well as disciplined inventory and expense management. Further, we delivered this profit growth in the face of unprecedented Covid-related external headwinds, including pressured bricks and mortar traffic, store closures and capacity limits, as well as higher freight costs and shipping constraints. I’m incredibly proud of our teams around the world for their unwavering passion, agility, and resilience this holiday season.”
“As we enter the second half of our fiscal year, we are optimistic for the future in spite of the uncertain backdrop. We are listening closely to consumers and responding in real-time to changes in their values, shopping behaviors, and brand engagement. We are leaning into the competitive advantages of our platform, bringing innovation to both product and how we connect with customers. As a result, we are driving demand for our categories and stretching what’s possible for our brands. Looking forward, I am confident that Tapestry will emerge from the pandemic stronger, well-positioned to both capture market share at higher levels of profitability and fully unlock the flywheel of sustainable, long-term growth,” Ms. Crevoiserat concluded.
The company achieved significant sequential improvement in revenue trends across all brands, led by North America. It drove triple-digit e-commerce growth versus prior year, with digital representing approximately one-third of global sales, including nearly half of revenue in North America. Tapestry also posted over 30% year-over-year revenue growth in Mainland China.
Gross margin increased, primarily driven by lower, more disciplined promotional activity, resulting approximately 300 basis points of improvement year-over-year. SG&A costs reduced, which declined high-single digits versus prior year, reflecting effective expense management and previously announced actions to transform the Company’s operating model, while reinvesting in the business and increasing marketing spend.
Tapestry generated strong operating income growth and margin expansion for the second consecutive quarter. Funded the pay down of $500 million of the Company’s $700 million revolver with positive free cash flow of $697 million year-to-date; paid down remaining $200 million balance subsequent to quarter-end.
In the fiscal second quarter, the Company made meaningful progress against its Acceleration Program to sharpen its focus on the consumer, leverage data to lead with a digital-first mindset and transform into a leaner and more responsive organization:
Tapestry recruited over 1.5 million new customers in North America across brands through its e-commerce channels, a meaningful increase versus prior year, as Tapestry continue to meet consumers where they choose to shop and utilize marketing capabilities to drive engagement and enhance the customer’s digital journey.
Leveraged Tapestry’s scale and agility to deliver triple-digit digital growth by expanding network through added fulfillment capacity and the diversification of parcel carrier partnerships, swiftly adapting to the current environment and navigating market constraints to support increased customer demand.
Tapestry drove significant growth in China through compelling product assortments, enhanced marketing and expanded reach across direct channels and third party online distribution.
The company achieved record sales during the 11.11 Global Shopping Festival on Tmall Luxury Pavilion, with Coach as the number one ranked brand in the handbags, luggage, and leather goods category and Stuart Weitzman as the number one ranked footwear brand over this key holiday period.
It deployed new data and analytics tools to drive strategic, data-driven decision making to optimize marketing messaging, assortment planning, and promotional levels, supporting higher AUR and conversion rates;
Continued to enhance the flexibility of its operating model, with a streamlined organizational structure and empowered teams, while optimizing its global fleet with 18 net closures in the fiscal first half representing a net decrease of 84 stores from the prior year; Remain on track to achieve gross run-rate savings of $300 million, including gross savings of $200 million in fiscal 2021.
Through these initiatives, the Company is better meeting the needs of each of its brands’ unique customers to drive engagement and desire for its products, creating a strong foundation for profitable expansion.
The second quarter 2021 of Tapestry has a net sales totaled $1.69 billion for the second quarter as compared to $1.82 billion in the prior year, representing a 7% decline.
Gross profit totaled $1.17 billion, while gross margin was 69.6% on both a reported and non-GAAP basis. This compared to prior year gross profit of approximately $1.21 billion on a reported and non-GAAP basis and gross margin of 66.6% and 66.7% on a reported and non-GAAP basis, respectively.
SG&A expenses totaled $784 million on a reported basis and represented 46.5% of sales compared to $847 million and 46.6%, respectively, in the year ago quarter. On a non-GAAP basis, SG&A expenses were $763 million and represented 45.2% of sales as compared to $838 million and 46.1%, respectively, in the year ago period.
Operating income was $389 million on a reported basis, while operating margin was 23.1% versus operating income of $363 million and an operating margin of 20.0% in the prior year. On a non-GAAP basis, operating income was $411 million, while operating margin was 24.4% versus operating income of $373 million and an operating margin of 20.6% in the prior year.
Net interest expense was $19 million in the quarter as compared to $14 million in the year ago period. Other income was $4 million versus $6 million in the prior year.
Net income for the quarter was $311 million on a reported basis, with earnings per diluted share of $1.11. This compared to net income of $299 million with earnings per diluted share of $1.08 in the prior year period. The reported tax rate for the quarter was 16.9% compared to 15.8% in the prior year period.
On a non-GAAP basis, net income for the quarter was $323 million with earnings per diluted share of $1.15. This compared to non-GAAP net income of $304 million with earnings per diluted share of $1.10 in the prior year period. The non-GAAP tax rate for the quarter was 18.5% compared to 16.9% in the prior year. Inventory was $632 million at the end of quarter versus ending inventory of $748 million in the year ago period.
Net sales for Coach totaled $1.23 billion for the fiscal second quarter as compared to $1.27 billion in the prior year, representing a decline of 4%.
Gross profit for Coach totaled $888 million, while gross margin was 72.5% on a reported and non-GAAP basis. This compared to prior year gross profit of $877 million and gross margin of 69.1% on a reported and non-GAAP basis.
SG&A expenses for Coach were $476 million on a reported basis and represented 38.9% of sales compared to approximately $494 million and 38.9%, respectively, in the year ago period. On a non-GAAP basis, SG&A expenses were $470 million and represented 38.4% of sales compared to expenses of $495 million and 39.0% of sales in the prior year.
Operating income for Coach was $412 million compared to reported operating income of approximately $383 million in the prior year, while operating margin was 33.6% versus 30.1% a year ago. On a non-GAAP basis, operating income was $418 million compared to $382 million in the prior year, while operating margin was 34.1% versus 30.1% a year ago.
Kate Spade Second Quarter 2021 Results
Net sales for Kate Spade totaled $376 million for the fiscal second quarter as compared to $430 million in the prior year, representing a decline of 13%, which included the impact related to a strategic pullback in lower margin wholesale disposition sales.
Gross profit for Kate Spade totaled $233 million, while gross margin was 62.1% on a reported and non-GAAP basis. This compared to gross profit of $262 million and gross margin of 61.0% in the prior year on a reported and non-GAAP basis.
SG&A expenses for Kate Spade were $174 million on a reported basis and represented 46.4% of sales. This compared to reported SG&A expenses of $194 million in the year ago period, which represented 45.2% of sales. On a non-GAAP basis, SG&A expenses were $172 million and represented 45.8% of sales. This compared to SG&A expenses of approximately $194 million in the prior year, which represented 45.0% of sales on a non-GAAP basis.
Operating income for Kate Spade was $59 million on a reported basis, representing an operating margin of 15.7%. This compared to operating income of $68 million and an operating margin of 15.8% on a reported basis in the year ago period. On a non-GAAP basis, operating income was $61 million, while operating margin was 16.3%. This compared to operating income of $69 million and an operating margin of 15.9% on a non-GAAP basis in the previous year.
Net sales for Stuart Weitzman totaled $85 million for the fiscal second quarter compared to $116 million in the same period of the prior year, representing a 27% decline.
Gross profit for Stuart Weitzman totaled $53 million on both a reported and non-GAAP basis, while gross margin for the quarter was 62.2%. This compared to prior year reported gross profit of $70 million and gross margin of 60.5%. On a non-GAAP basis, prior year gross profit was $72 million, while gross margin was 61.8%.
SG&A expenses for Stuart Weitzman were $41 million on a reported basis and represented 48.0% of sales. This compared to reported SG&A expenses of approximately $60 million in the year ago period, which represented 52.3% of sales. On a non-GAAP basis, SG&A expenses were approximately $43 million and represented 50.9% of sales as compared to $60 million or 52.0% of sales in the prior year period.
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Operating income was $12 million on a reported basis, representing an operating margin of 14.1%, compared to operating income of $10 million and operating margin of 8.2% in the year ago period. On a non-GAAP basis, operating income was approximately $10 million, while operating margin was 11.3% versus operating income of $11 million and operating margin of 9.8% in the prior year.