Tapestry (TPR) Q2 Earnings Beat Estimates, Sales Rise Y/Y
Tapestry, Inc. TPR reported impressive second-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Also, this house of modern luxury accessories and lifestyle brands witnessed year-over-year growth in revenues and earnings.
Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote
Sales & Earnings Picture
Tapestry posted adjusted earnings of $1.63 per share, surpassing the Zacks Consensus Estimate of adjusted earnings of $1.45 per share. Also, earnings grew 19.9% from the year-ago period.
Net sales were $2,084.5 million, beating the consensus estimate of $2,055 million. Sales rose 2.9% year over year. On a constant-currency basis, the top line inched up about 3%, excluding a FX headwind of about 40 basis points (bps).
We note that shares of this New York-based company have gained 52.9% in the past three months compared with the industry’s 21.3% rise.
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Operating Details
Tapestry's fiscal second-quarter results surpassed expectations due to strong brand building and execution, especially during the holiday season. The company achieved record revenues and EPS, leading to an increased EPS outlook for fiscal 2024.
In the reported quarter, Tapestry attracted 2.5 million customers in North America, with approximately 50% being from the Gen Z and Millennial generations. This aligns with the company's targeted approach to engage and draw in younger consumers to its brands, showcasing the effectiveness of its strategic initiatives in this demographic segment.
The company attributes its success to innovative products, engaging storytelling and operational excellence. Looking ahead, Tapestry commits to sustainable long-term growth and shareholder value, focusing on consumer-centric strategies, brand development, and leveraging a data-driven engagement platform to boost creativity and agility.
The company has agreed to acquire Capri Holdings for $8.5 billion. The deal will unite the six distinctive iconic brands into a powerful global house of luxury portfolio. Capri Holdings’ shareholders have recently approved the transaction. Tapestry is working to obtain the necessary regulatory approvals, including responding to the U.S. Federal Trade Commission’s second request. Management is confident about completing this transaction, which is likely to close in fiscal 2025.
Brand Performances
For the fiscal second quarter, net sales for Coach were $1,541.9 million, up 6.4% year over year. Kate Spade’s sales were $460.4 million, down 6.1% from the year-ago period. Net sales for Stuart Weitzman totaled $82.2 million, reflecting a year-over-year decrease of 3.7%.
The Zacks Consensus Estimate for the company’s Coach, Kate Spade and Stuart Weitzman revenues were pegged at $1,496 million, $477 million and $83 million, respectively, for the fiscal second quarter.
Regional Details
Tapestry's international sales results showcased strong year-over-year growth of 12% in the fiscal second quarter across various regions outside the United States, driven by a combination of increased tourist demand and strategic expansion.
Sales in Greater China rose 19% year over year, marking a significant recovery and growth as the company moved past the impacts of COVID-19 restrictions from fiscal 2023. This region demonstrated robust consumer engagement and revenue growth in the quarter under review.
In Japan, sales increased 6% year over year, attributed to heightened tourist demand. This growth indicates a positive consumer response to Tapestry's offerings and brand positioning within the Japan market.
Revenues in Other Asian markets, including Korea, Singapore, Australia, and New Zealand, grew 9% year over year. This rise was led by strong brand performance and consumer demand across diverse Asia markets.
Europe markets continued to show momentum, with an 11% increase in revenues from the previous year. This growth was driven by a combination of factors, including strategic brand investments and an increase in consumer spending. While international markets experienced significant growth, sales in North America were in line with the previous year.
The Zacks Rank #3 (Hold) company reported a 4% increase in direct-to-consumer revenues at cc, including mid-single-digit growth in stores and digital, supported by its advanced data and analytics platform.
Digital sales remained robust, accounting for approximately one-third of the total revenues, highlighting the company's strong digital presence and engagement. Additionally, Tapestry enhanced its omni-channel capabilities by opening a multi-brand fulfillment center in Las Vegas to meet customer needs more sustainably and efficiently.
Margin Discussion
The consolidated gross profit was $1,493.2 million, up 7.5% from the year-ago period. Also, the gross margin increased 300 bps to 71.6%, gaining from operational efficiency and lower freight expenses.
The company reported an adjusted operating income of $475.9 million, up 13.8% from the prior-year quarter. Meanwhile, the adjusted operating margin was 22.8%, expanding 220 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 $1,017.3 million, up 4.8% year over year. As a percentage of net sales, this metric increased 90 basis points to 48.8%.
Store Update
At the end of the fiscal second quarter, Tapestry operated 331 Coach stores, 205 Kate Spade outlets and 38 Stuart Weitzman stores in North America. Internationally, the store count was 613, 194 and 61 for Coach, Kate Spade and Stuart Weitzman, respectively.
Other Financial Details
Tapestry ended the fiscal second quarter with cash, cash equivalents and short-term investments of $7,462.3 million, long-term debt of $ 7,714.4 million, and stockholders' equity of $2,659.8 million.
In the fiscal second quarter, the company's cash flow from operating activities was an inflow of $827 million, showing a significant increase from $633 million in the prior-year period. The free cash flow for the quarter also improved, reaching $804 million from $551 million in the prior year. The company incurred capital expenditure and implementation costs related to Cloud Computing of $30 million in the aforementioned period.
The company’s board has declared a quarterly cash dividend of 35 cents per share, payable Mar 25, 2024, to shareholders of record as of Mar 8, 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 third quarter, Tapestry anticipates revenues between in line and slightly above the previous year’s reported figure in cc. However, it anticipates slightly lower revenues on a reported basis. This includes impacts of around 120 basis points from foreign exchange pressures. The company expects fiscal third-quarter earnings per share to be 65 cents, with growth expected in the fiscal fourth quarter.
For fiscal 2024, Tapestry envisions revenues of $6.7 billion, indicating a 1% year-over-year rise on a reported basis. Net interest expenses are anticipated to be $20 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. Previously, it was projected to be $4.10-$4.15 per share.
This guidance assumes no revenue or earnings contribution and deal-related costs from the proposed acquisition of Capri Holdings, gradual recovery in Greater China, and no worsening of inflationary pressures or consumer confidence.
Tapestry has set a long-term leverage goal, aiming for a ratio of less than 2.5 times gross debt to adjusted EBITDA. The company anticipates meeting this target within two years following the completion of the Capri transaction.
Key Picks
Some better-ranked stocks from the same space are Abercrombie & Fitch Co. ANF, American Eagle Outfitters, Inc. AEO and Deckers Outdoor Corporation DECK.
Abercrombie & Fitch is a specialty retailer of premium, high-quality casual apparel. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year sales indicates growth of 14.9% from the fiscal 2022 reported figure. ANF has a trailing four-quarter average earnings surprise of 713%.
American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. It flaunts a Zacks Rank of 1 at present.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 45.4% and 5%, respectively, from the fiscal 2022 reported figure. AEO has a trailing four-quarter average earnings surprise of 23%.
Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories. The company currently sports a Zacks Rank #1. DECK has a trailing four-quarter earnings surprise of 32.1%, on average.
The Zacks Consensus Estimate for Deckers Outdoor’ current fiscal-year earnings and sales indicates growth of 37.3% and 15.3%, respectively, from the fiscal 2023 reported figures.
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Tapestry, Inc. (TPR) : Free Stock Analysis Report
