In Trends

Tapestry announces financial results

Tapestry, Inc., a New York-based house of modern luxury accessories and lifestyle brands, reported results for the fiscal third quarter ended 27th March, 2021.

SEE ALSO : Tapestry appoints new CFO

Joanne Crevoiserat, Chief Executive Officer of Tapestry, Inc., said, “Our third quarter results significantly outpaced expectations, underscoring the power of the Acceleration Program and enthusiasm for our brands. Through a sharpened focus on the consumer, we fueled new customer acquisition at Coach, Kate Spade, and Stuart Weitzman and delivered robust sales growth led by Digital and China. Importantly, for the third consecutive quarter, we achieved operating income gains – compared to both FY20 and FY19 – supported by a continued reduction in promotional activity, higher AUR, and disciplined expense management. This performance is a testament to our talented teams around the world, whose creativity, agility, and resilience have enabled us to successfully navigate a challenging backdrop and deliver for our customers, while positioning Tapestry to emerge from the pandemic stronger.”

Ms. Crevoiserat continued, “Building on this momentum, we are increasingly optimistic about our ability to generate sustainable top and bottom-line growth. Looking forward, while the environment remains volatile, we see encouraging signs of recovery as vaccination efforts progress, resulting in increased consumer confidence, strong demand for our categories, and improving in-store traffic trends. In this context, we remain focused on driving brand relevance and customer engagement through product innovation and compelling marketing, supported by data-driven insights and a digital-first mindset. We will also continue to lean into our competitive advantages, including our globally diversified, direct-to-consumer model, and distort investments to high-growth opportunities. We are confident that our clear, consumer-centric strategy, powerful brands, and differentiated, scalable platform uniquely position us to capture market share at higher levels of profitability.”

In the fiscal third 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 approximately 700,000 new customers through e-commerce channels in North America, an increase versus prior year, as the Group continues to meet consumers where they choose to shop and leverage social media platforms to build awareness and drive engagement, notably with Millennial and Gen Z consumers.

It is reported that the Group delivered an increase in purchase frequency versus prior year through enhanced and consistent brand experiences across touchpoints and reactivated lapsed customers across brands.

The Group achieved significant growth in China compared to both FY20 and FY19 through integrated, comprehensive brand-building strategies, bringing innovative product, marketing, and experiences to Chinese consumers; Drove revenue gains with Chinese consumers globally compared to pre-pandemic levels.

SKU counts is effectively reduced by 30% to 50% and improved assortment productivity, resulting in more focused product messaging and compelling offerings, which in turn, contributed to stronger overall AUR and gross margin through higher IMUs and lower promotional activity.

Data and analytics tools are utilized across Tapestry’s platform to provide the Group with a deeper understanding of customer behavior through measurement, enabling a ‘test-and-learn’ environment that empowers our teams to more quickly respond to changes in consumer preferences and demand as well as scale opportunities across brands.

The Group continued to enhance the flexibility of its operating model, through a streamlined organizational structure and optimized global fleet, with 49 net closures year-to-date, representing a net decrease of 94 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.

Net sales totaled US$1.27 billion for the third quarter as compared to US$1.07 billion in the prior year, representing a 19% increase.

Gross profit totaled US$912 million, while gross margin was 71.6% on both a reported and non-GAAP basis. This compared to prior year reported gross profit of US$616 million and gross margin of 57.4%. On a non-GAAP basis, prior year gross profit was US$720 million, while gross margin was 67.1%.

SG&A expenses totaled US$795 million on a reported basis and represented 62.5% of sales compared to US$1.30 billion and 121.3%, respectively, in the year ago quarter. On a non-GAAP basis, SG&A expenses were $729 million and represented 57.3% of sales as compared to US$752 million and 70.1%, respectively, in the year ago period.

Operating income was US$117 million on a reported basis, while operating margin was 9.2% versus an operating loss of US$685 million and an operating margin of (63.9)% in the prior year. On a non-GAAP basis, operating income was US$183 million, while operating margin was 14.4%, which compares to an operating loss of US$32 million and an operating margin of (2.9)% in the prior year.

Net interest expense was US$17 million in the quarter as compared to approximately $13 million in the year ago period. Other expense was US$4 million versus $6 million in the prior year.

Net income for the quarter was US$92 million on a reported basis, with earnings per diluted share of  US$0.32. This compared to a net loss of US$677 million with a loss per diluted share of US$2.45 in the prior year period. The reported tax rate for the quarter was 3.8% compared to 4.0% in the prior year period. On a non-GAAP basis, net income for the quarter was $145 million with earnings per diluted share of US$0.51. This compared to a non-GAAP net loss of US$76 million with a loss per diluted share of US$0.27 in the prior year period. The non-GAAP tax rate for the quarter was 10.3% compared to (48.2)% in the prior year. Inventory was US$700 million at quarter-end versus ending inventory of $853 million in the year ago period.

Net sales for Coach totaled US$964 million for the fiscal third quarter as compared to approximately $772 million in the prior year, representing an increase of 25% and a return to pre-pandemic revenue levels.

Gross profit for Coach totaled US$718 million, while gross margin was 74.5% on both a reported and non-GAAP basis. This compared to prior year gross profit of US$476 million and gross margin of 61.6% on a reported basis. On a non-GAAP basis, gross profit was US$538 million, while gross margin was 69.6% in the year ago quarter.

SG&A expenses for Coach were US$467 million on a reported basis and represented 48.4% of sales compared to $438 million and 56.6%, respectively, in the year ago period. On a non-GAAP basis, SG&A expenses were $442 million and represented 45.8% of sales compared to expenses of US$421 million and 54.5% of sales in the prior year.

Operating income for Coach was US$251 million compared to reported operating income of US$38 million in the prior year, while operating margin was 26.1% versus 4.9% a year ago. On a non-GAAP basis, operating income was approximately US$276 million compared to US$116 million in the prior year, while operating margin was 28.7% versus 15.1% a year ago.

Net sales for Kate Spade totaled US$252 million for the fiscal third quarter as compared to US$250 million in the prior year, representing an increase of 1%, which included an impact related to a strategic pullback in lower margin wholesale disposition sales.

Gross profit for Kate Spade totaled US$160 million, while gross margin was 63.5% on a reported and non-GAAP basis. This compared to gross profit of approximately US$123 million and gross margin of 49.1% in the prior year on a reported basis, and US$155 million and 62.0%, respectively, on a non-GAAP basis.

SG&A expenses for Kate Spade were US$169 million on a reported basis and represented 66.9% of sales. This compared to reported SG&A expenses of US$214 million in the year ago period, which represented 85.7% of sales. On a non-GAAP basis, SG&A expenses were US$149 million and represented 58.9% of sales, which compared to $172 million and 68.9% of sales, respectively, in the prior year period.

Operating loss for Kate Spade was US$9 million on a reported basis, representing an operating margin of (3.4)%. This compared to an operating loss of US$91 million and an operating margin of (36.6)% on a reported basis in the year ago period. On a non-GAAP basis, operating income was approximately US$12 million, while operating margin was 4.6%. This compared to an operating loss of US$17 million and an operating margin of (6.9)% on a non-GAAP basis in the previous year.

Net sales for Stuart Weitzman totaled US$57 million for the fiscal third quarter compared to US$51 million in the same period of the prior year, representing a 13% increase. These results included the negative impact of a North America wholesale timing shift into the fourth fiscal quarter.

Gross profit for Stuart Weitzman totaled US$34 million on both a reported and non-GAAP basis, while gross margin for the quarter was 58.9%. This compared to prior year reported gross profit of US$18 million and gross margin of 35.4%. On a non-GAAP basis, prior year gross profit was US$28 million, while gross margin was 54.7%.

SG&A expenses for Stuart Weitzman were US$51 million on a reported basis, which compared to reported SG&A expenses of US$549 million in the year ago period. On a non-GAAP basis, SG&A expenses were US$42 million as compared to US$63 million in the prior year period.

SEE ALSO : Estée Lauder announces financial results

Operating loss for Stuart Weitzman was approximately US$18 million on a reported basis, compared to an operating loss of US$531 million in the year ago period. On a non-GAAP basis, operating loss was US$8 million versus an operating loss of $35 million in the prior year.

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