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Tapestry's (TPR) Q4 Earnings Beat, Digital Sales Increase Y/Y

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In spite of a challenging backdrop, Tapestry, Inc. TPR reported stronger-than-anticipated fourth-quarter fiscal 2021 results. This house of modern luxury accessories and lifestyle brands witnessed significant improvement in sales trends that even surpassed pre-pandemic levels. Also, the company attained a meaningful improvement in earnings per share on a year-over-year basis. The quarter marked fourth straight top and bottom-line beat.

Well, the luxury goods industry has been witnessing resurgence in demand, courtesy of pandemic-relief package and stepped-up vaccinations.

Sales & Earnings Picture

Tapestry posted adjusted earnings of 74 cents a share that comfortably surpassed the Zacks Consensus Estimate of 66 cents. Remarkably, the bottom line improved significantly from an adjusted loss of 25 cents a share reported in the year-ago period, thanks to higher net sales and margin expansion.

Net sales of this New York-based company came in at $1,615.4 million, ahead of the Zacks Consensus Estimate of $1,588.1 million. The metric soared 126% on a year-over-year basis driven by growth at Coach brand. Management highlighted that strength in e-commerce and China contributed to this upbeat performance. Notably, the company added more than 900,000 new customers through its e-commerce channels in North America during the quarter.

Tapestry guided revenues of approximately $6.4 billion for fiscal 2022. This suggests mid-teens growth versus the prior year on a 52-week, comparable basis. The company projected fiscal 2022 earnings in the band of $3.30-$3.35 per share, which indicates a sharp increase from adjusted earnings of $2.97 per share reported in fiscal 2021.

Thanks to the company’s outstanding results, sturdy balance sheet and solid free cash flow generation, management reinstated dividend and share repurchase program. It plans to return more than $750 million to stockholders in fiscal 2022.

Shares of this Zacks Rank #2 (Buy) company have increased 33.4% so far in the year compared with the industry’s rally of 10.6%.

Tapestry, Inc. Price, Consensus and EPS Surprise

Tapestry, Inc. Price, Consensus and EPS Surprise
Tapestry, Inc. Price, Consensus and EPS Surprise

Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote

Let’s Take an Insight

Tapestry’s impressive performance validates significant progress on previously announced Acceleration Program. The program aims at transforming into a leaner and more responsive organization, building significant data and analytics capabilities with focus on e-commerce channels, and operating with a clearly defined path and strategy for each brand.

Net sales for Coach came in at $1,188.9 million, up 130% year over year. Kate Spade sales came in at $341.6 million, surging 108% from the year-ago period. Net sales for Stuart Weitzman totaled $84.9 million, reflecting an increase of 156% year over year.

The company continued with its sturdy e-commerce performance with digital sales rising over 35% during the quarter compared with prior year and more than 200% compared with pre-pandemic levels. Impressively, the company registered about 60% year-over-year increase in sales in Mainland China and over 40% versus pre-pandemic levels. Sales in North America surged approximately 165% versus the prior year.

Tapestry’s actions to lower promotional activity and improve Average Unit Retail or AURs across brands helped post fourth successive quarter of operating income growth and margin expansion, ahead of both fiscal 2020 and 2019.

The company effectively reduced SKU counts by roughly 40% and improved assortment productivity. It has also been enhancing the flexibility of its operating model via a streamlined organizational structure and optimized global fleet. Markedly, Tapestry remains on track to realize about $300 million in gross run-rate savings of $300 million in fiscal 2022. The company has attained $200 million of gross expense savings in fiscal 2021. As a part of global fleet optimization strategy, the company notified the closure of 59 net stores in fiscal 2021, reflecting a net decline of 90 doors over the past two years.

Margin Discussions

Consolidated adjusted gross profit came in at $1,158 million, up considerably from $507.3 million reported in the year-ago period. Moreover, adjusted gross margin expanded 70 basis points to 71.7%. Further, the company reported adjusted operating income of $272.5 million, against adjusted operating loss of $69.8 million in the prior-year quarter.

We note that adjusted SG&A expenses rose 53% year over year to $885.5 million. Again, as a percentage of net sales, SG&A decreased to 54.8% versus 80.8% in the year-ago period.

Store Update

At the end of the quarter, the company operated 354 Coach stores, 210 Kate Spade outlets and 48 Stuart Weitzman stores in North America. Internationally, the count was 585, 197 and 56 for Coach, Kate Spade and Stuart Weitzman, respectively.

Other Financial Details

Tapestry ended the quarter with cash, cash equivalents and short-term investments of $2,015.8 million, long-term debt of $1,590.7 million and stockholders' equity of $3,259.3 million. The company generated free cash flow of $1.21 billion and incurred capital expenditures of $116 million in fiscal 2021. Further, the company intends to buyback approximately $500 million worth of shares in fiscal 2022.

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