Tapestry's (TPR) Q1 Earnings & Revenues Surpass Estimates
Tapestry, Inc. TPR delivered better-than-expected first-quarter fiscal 2019 results. The adjusted earnings of 48 cents a share beat the Zacks Consensus Estimate of 44 cents, thereby resulting in a positive earnings surprise of 9% and marking the 19th straight quarter of earnings beat. The quarterly earnings improved approximately 14% year over year buoyed by top line growth, gross margin expansion and favorable tax rate.
Net sales of this New York-based company came in at $1,381.2 million, up 7% year over year on a reported and constant currency basis. We noted that the total sales came ahead of the Zacks Consensus Estimate of $1,351 million, marking the fourth successive quarterly beat.
Tapestry is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman and Kate Spade & Company is being viewed as a significant step in its efforts toward becoming a multi-brand company. Moreover, management has undertaken transformation initiatives revolving around product, stores and marketing. Sales increase at Coach brand, contributions from recent buyouts and cost containment efforts favorably impacted the results.
We note that consolidated adjusted gross profit came in at $935.7 million, up significantly from $851.3 million, while gross margin expanded 170 basis points to 67.8%. Further, adjusted operating income of $181.2 million, up 7% from the prior-year quarter figure, however, operating margin remained flat at 13.1%.
Segment Details
Net sales for Coach came in at $960.7 million, reflecting an increase of 4% year over year on a reported and constant currency basis. Comparable-store sales rose 4%, comprising roughly a 50 basis points benefit due to rise in global e-commerce. Both gross and operating margins for the segment expanded.
Kate Spade sales came in at $325.4 million, up 21% year over year on a reported and constant currency basis. Comparable-store sales slid 5%, in spite of including the favorable impact of approximately 300 basis points from a rise in global e-commerce. Management expects comparable-store sales to improve in the second half of the fiscal year.
Net sales for Stuart Weitzman totaled $95.1 million, reflecting a decline of 1% year over year on a reported and constant currency basis. The segment’s gross margin also shriveled considerably. The company hinted that as expected earlier development and delivery delays hurt sales and margins, however, rate of sales decline decelerated sharply from 17% recorded in the final quarter of fiscal 2018. Management expects the segment’s topline to return to growth in the second quarter of fiscal 2019.
Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. Price, Consensus and EPS Surprise | Tapestry, Inc. Quote
Store Update
At the end of the quarter, the company operated 398 Coach stores, 211 Kate Spade outlets and 67 Stuart Weitzman stores in North America. Internationally, the count stood at 584, 152 and 44 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry, which carries a Zacks Rank #3 (Hold), ended the quarter with cash, cash equivalents and short-term investments of $1,063.2 million, long-term debt of $1,600.5 million and shareholders' equity of $3,309.6 million.
FY 2019 Guidance
Tapestry continues to envision fiscal 2019 sales to increase at a mid-single-digit rate year over year to $6.1-$6.2 billion. Management expects operating income growth rate to surpass that of the top line on the back of organic growth, realization of synergies from the Kate Spade buyout, impact of distributor consolidations and systems investments. The company anticipates to attain run-rate synergies of approximately $100-$115 million from Kate Spade buyout in fiscal 2019.
The company forecasts fiscal 2019 earnings in the range of $2.75-$2.80 per share compared with $2.63 delivered in fiscal 2018. The current Zacks Consensus Estimate for fiscal year is pegged at $2.77. The company had earlier projected earnings between $2.70 and $2.80 per share.
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