Tapestry (TPR) Q1 Earnings Beat Estimates, Revenues Rise Y/Y
Tapestry, Inc. TPR came up with first-quarter fiscal 2023 results, wherein the top line marginally missed the Zacks Consensus Estimate, while the bottom line beat the same. This house of modern luxury accessories and lifestyle brands witnessed net sales growth but a decline in earnings per share. The parent of Coach and Kate Spade brands trimmed the fiscal year guidance due to the strengthening of the U.S. dollar and pandemic-induced restrictions in China.
Sales & Earnings Picture
Tapestry posted first-quarter earnings of 79 cents a share, which beat the consensus mark of 74 cents. However, the metric declined from the 82 cents reported in the year-ago period.
Net sales of this New York-based company came in at $1,506.5 million, marginally missing the Zacks Consensus Estimate of $1,508 million. However, the metric rose 2% on a year-over-year basis, driven by growth in the Kate Spade brand. On a constant-currency basis, the top line increased more than 5%, excluding an FX headwind of about 370 basis points.
Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote
Let’s Delve Deeper
For the first quarter, net sales for Coach came in at 1,119.3 million, almost flat year over year. Kate Spade’s sales came in at $321.9 million, up 7% from the year-ago period. Net sales for Stuart Weitzman totaled $65.3 million, reflecting a decline of 2% year over year.
Sales in North America improved slightly on a reported and constant-currency basis. The company added nearly 1.4 million new customers across channels in North America.
With respect to International markets, the company attained sales growth of 11% on a constant-currency basis. Sales in Europe and Japan rose 24% and 16% year over year, respectively. Sales in Other Asia surged more than 135%. These helped offset an 11% decline in Greater China due to pandemic-related lockdowns and disruptions.
Tapestry witnessed growth in the omnichannel, led by a low-single-digit increase in direct-to-consumer sales at constant currency. This can be attributed to a high-single-digit jump in store revenues that offset a high-single-digit decline in digital.
Margin Discussion
The consolidated gross profit came in at $1,054.6 million, down 1% from the year-ago period. Moreover, the gross margin contracted 220 basis points to 70%. Management informed that the gross margin was adversely impacted by higher freight costs, which totaled $20 million or 130 basis points, and an FX headwind of about 70 basis points.
Further, the company reported an operating income of $254.3 million, down from an operating income of $307.1 million in the prior-year quarter. Meanwhile, the adjusted operating margin shrunk 380 basis points to 16.9%.
Store Update
At the end of the quarter, Tapestry operated 341 Coach stores, 207 Kate Spade outlets and 38 Stuart Weitzman stores in North America. Internationally, the count was 608, 192 and 60 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the quarter with cash, cash equivalents and short-term investments of $557.1 million, long-term debt of $1,653.4 million and stockholders' equity of $2,255.4 million.
Free cash flow for the quarter was an outflow of $198 million. The company incurred capital expenditures and implementation costs related to Cloud Computing of $45 million in the quarter. For fiscal 2023, management anticipates capital expenditures and implementation costs related to Cloud Computing of about $325 million.
Tapestry returned $175 million to shareholders through a combination of share repurchases and dividends. The company looks to repurchase approximately $700 million worth of shares in fiscal 2023, with approximately $100 million to be spent in the first quarter to repurchase approximately three million shares at an average cost of $33.83. The company anticipates a dividend payout of about $300 million.
Outlook
Tapestry now envisions revenues to be approximately $6.5 billion to $6.6 billion for fiscal 2023, down from the prior projection of $6.9 billion. The current view suggests a slight decline on a reported basis due to roughly 450 basis points of FX pressure. On a constant-currency basis, revenue growth is expected at about 2-4%.
The company guided earnings in the band of $3.60-$3.70 per share, representing mid-single-digit growth compared to the prior year and includes a currency headwind of approximately 50 cents. Management earlier forecast earnings between $3.80 and $3.90 per share.
Management foresees the fiscal 2023 gross margin to be in line with to marginally below fiscal 2022, reflecting moderating freight costs and an AUR increase, largely offset by higher input costs and FX headwinds.
Tapestry reported a gross margin of 69.6% in fiscal 2022. It expects the fiscal 2023 operating margin to shrink more than 70 basis points year over year due to FX headwinds of about 120 basis points.
Shares of this Zacks Rank #3 (Hold) company have fallen 12% in the past three months compared with the industry’s decline of 16.6%.
3 Stocks Hogging the Limelight
Here we have highlighted three better-ranked stocks, namely Crocs CROX, Chipotle Mexican Grill CMG and Kroger KR.
Crocs, a leader in innovative casual footwear for women, men and children, carries a Zacks Rank #2 (Buy). CROX has an expected EPS growth rate of 15% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Crocs’ current financial-year sales and EPS suggests growth of 51.5% and 23.7%, respectively, from the year-ago period. CROX has a trailing four-quarter earnings surprise of 18.2%, on average.
Chipotle Mexican Grill, an operator of fast-casual restaurants, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 23.4%.
The Zacks Consensus Estimate for Chipotle Mexican Grill’s current financial-year revenues and EPS suggests growth of 15.2% and 30.8%, respectively, from the year-ago reported figure. CMG has a trailing four-quarter earnings surprise of 4.1%, on average.
Kroger, one of the leading grocery retailers, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 11.7%.
The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 7.8% and 10.3%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 15.7%, on average.
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